As I stated in yesterday's column, the market bias on the 60-minute time frame was still bearish going into Tuesday's trade. Ahead of the open, however, the market received a short-lived boost from the early morning economic data.

The Empire State index, which serves as a gauge for manufacturers in New York State, jumped almost 23 points in April, from a negative 22.2 reading in March to 0.6. In a separate report from the Labor Department, wholesale prices climbed 1.1% in March, led by rising energy and food prices. The core producer prices index, which excludes these two, rose only 0.2%. While the core PPI was in line with expectations, the PPI as a whole was much higher than anticipated. Crude oil hit new records once again intraday on Tuesday after spiking to highs following the data.

The premarket data created a sharp upside gap in the market as the regular session began. As discussed on Friday, most of the extreme gaps in the market will fill within the first two hours of trade. They must begin to do so within the first 15 minutes, however, to maintain that bias. On Friday they did not, but selling hit almost immediately following Tuesday's open. This eventually led to new lows to confirm the larger 60-minute bearish bias.

The Nasdaq Composite ($COMPX) experienced the smallest gap out of the three major indices on Tuesday morning. It was hence the first of the three to hit its 5-minute 20-period simple moving average support coming out of the early morning selling. This level hit at 10:00 ET and stalled the selling momentarily. Both the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) also stalled at this time. The momentum of the selloff, combined with the extreme gap size and subsequent bearish bias were too strong to allow for any decent price correction off that support and by the 10:15 ET correction period the indices were making their way to new intraday lows.

The price level from the gap closure was the next support zone for the market. This hit in all three of the indices minutes ahead of 10:30 ET. The Nasdaq pushed lower to close the gap from April 31, but the S&Ps and Dow finally had a chance to catch their breath and the Nasdaq followed at the 10:45 ET correction period. The pace of the downturn, however, prevented the bulls from gaining a foothold and the market fell into a congestion zone along the intraday lows at the level of Monday's close. Volume declined during this correction with the Dow hugging its 5-minute 20 sma to form a 5-minute Avalanche pattern, which is a short setup coming off a price reversal.

The Avalanche and continuation of the morning's selloff triggered into the 11:00 ET correction period. Momentum was strong for about 15 minutes. At 11:15 support hit once again when the Dow came into its measured move level from the earlier descent. The indices held the lows and began to round off at the support. I had hoped to get a better price reaction more quickly off them, but the market congested there for awhile, gradually shifting momentum into the early afternoon. I had a difficult time locating decent setups at this time. Patterns which looked decent on the smaller time frames were most often going against a larger time frame bias.

At about 12:15 ET the market displayed its first real sign of some afternoon strength. The Nasdaq and S&Ps had been hugging the 5-minute 20 sma and broke that level to trigger a Phoenix buy. This took the market higher into 12:45 ET. Price resistance from earlier congestion intraday in the Nasdaq and S&Ps stalled the move.

If the bears were going to regain some control, this was their chance to do so. Instead, they fell into a two-wave correction along the afternoon highs, basing into the 5-minute 20 sma, which had previously been resistance and creating a bull flag on the 5-minute time frame into 13:15 ET. Within only about 15 minutes all three of the indices had regained approximately 50% of the losses off the day's highs. This price level stalled the ascent and another bull flag formed on the 5-minute time frame which took the market into a new afternoon highs at 14:00 ET.

By this point the indices had reclaimed about 62% of the morning losses and the Nasdaq 30-minute 20 sma was hitting as resistance. This resistance, along with the 14:00 ET correction period, opened the way for another correction off highs. I expected this move to correct longer than the prior two, but to hold up fairly well overall with the 5 minute 20 sma once again initial support. A small 2-minute Avalanche took the indices into this support, but the bounce still managed to hold the prior highs as the indices held the bias for a larger reaction off resistance in the final two hours of trade.

The market remained stuck in a large congestion on the 15-minute time frame throughout the rest of the day. The 15:00 ET correction period hit as the indices were coming into 15-minute 20 sma support, and this level held, albeit slowly at first, creating a retest of the zone at afternoon highs. The did manage slightly higher highs at that zone, but essentially continued to congest. In the final minutes of trade the indices made a run for highs to break the range. The S&Ps and Dow succeeded, but held opening prices as resistance.

Thanks to the late day rally all three indices managed to close in positive territory. The Dow gained 60.41 points, or 0.5%, to close at 12,352. Alcoa Inc. (AA) posted the largest gains with a move of +2.68%. WalMart (WMT) was a close second with a gain of 2.03%. AIG, JPM, C, XOM, UTX, INTC, and AXP all gained more than 1%. Boeing (BA) was the top losers, falling 1.97%. Airlines overall were very hard hit on Tuesday. Delta (DAL) lost 12.6%, while Northwest (NWA) fell 8.4% on news of a proposed merger. The Amex Airlines Index fell 4.34%.

The S&P 500 gained 6.11 points, or 0.5%, on Tuesday, ending the session at 1,333. The Nasdaq Composite rose 10.22 points, which was also 0.5%. It closed at 2,286. Other sectors under pressure were banking and biotechnology. Top performers included gold, oil, health care, and housing stocks. The market came into the support zone between the lows of the 28th and gap of the 31st of last month in Tuesday's session. Even though the market bounced into the afternoon, another test of that support zone is still quite possible. At the very least I am expecting congestion with a slight pullback on Wednesday morning. This week so far has been a tough one and Wednesday is likely to continue to be so as well.







Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.