As earnings season winds down, the market still refuses to give up hope despite strong bearish pressure. Monday's session began with a slight upside gap in the indices. The index futures had all formed three waves of buying on their 400 and 800 tick charts and this left the market with a bearish bias going into that opening bell. It did not take long for the indices to pull back, creating a lower high and breaking the immediate uptrend to favor a longer correction.

Action out of the open was once again very choppy. The trend in recent weeks for significantly more choppy intraday moves followed by sharp trend action with stronger than average trend moves carried through into Monday's session. After pulling back for the first 45 minutes of trade on Monday, during which there was substantial ovelap from bar to bar on the 5-minute charts, the market took off. The indices had found support with the 10:15 ET correction period and a 50% retracement in the Nasdaq back to Friday's afternoon lows and after only a modest change of pace on a 50-tick time frame, the indices were back to testing the morning's highs. The Nasdaq, which had the most shallow correction out of the three major indices, led the way.

Dow Jones Industrial Average ($DJI)


When the 10:45 ET correction period hit the market stalled. The momentum was so strong on the upside, however, that it worked against the odds of a decent price correction and instead the market held up at the zone of the day's highs. A second wave of buying triggered at about 11:40 ET. In the time zone between 11:15 ET and 12:00 ET it is difficult to pin down any time at which a new move is most likely to occur, so it was primarily the momentum shift on the smaller time frames that indicated the beginning of this latest breakout.

This second rally closed the S&P 500's gap from Friday morning. That price resistance level hit with the 12:00 ET correction period, although it took a few more minutes for the indices to begin to react to it. The overall momentum of the second rally was less than the first, suggesting that any additional upside in the immediate trend would have to work even harder to press to new highs and that a longer correction would be needed before the trend could resume, similar to the uptrend into the morning which had also had three waves of buying.

The market moved in for a third wave around 12:40 ET, but the move only managed a slightly higher high in the indices before the 13:00 ET correction period hit. This finalized the three wave trend move and the market began to pull back into the afternoon. The momentum on that pullback, however, was not extreme. Two waves on a 5-minute time frame took it into about 13:45 ET. The Nasdaq once again experienced the most shallow pullback, while the S&Ps and Dow found support at the congestion from 11-11:30 ET.

S&P 500 ($SPX)


The buying returned slowly for the second half of the afternoon, but after 14:25 ET the momentum increased dramatically, sending the indices soaring to new intraday highs. Volume had been slowing throughout the morning rally and into the early afternoon, but it picked up strong again with the 14:25 ET momentum increase, confirming the rally. The Nasdaq was able to make it back to the zone of last week's highs, while the S&Ps and Dow found resistance at the 15-minute 200-period simple moving averages. These hit heading into the 15:00 ET correction period and the highs held with a range into the close.

The Dow Jones Industrial Average ($DJI) rose 130.43 points, or 1% on Monday, closing at 12,876 with 27 of its 30 components ending higher on the session. Alcoa (AA) led the move with a 6.58% gain, while McDonalds (MCD) climbed 2.75%, and Caterpillar (CAT) broke out of a nice daily range with a 2.52% gain. American Intl. Group (AIG) (-4.74%), and Hewlett-Packard (-4.68) lost ground with Chevron (CVX) closing only a hair negative (-0.-3%).

Nasdaq Composite ($COMPX)


The S&P 500 ($SPX) rose 15.3 points, or 1.1%, on Monday. It closed at 1,403.5. The Nasdaq Composite ($COMPX) gained 42.97 points, or 1.8%, and closed at 2,488.49. The tech stocks helped propel the Nasdaq higher with Research in Motion (RIMM) gaining 6.9% with the introduction of its new BlackBerry model. In other news, MBIA (MBI), a major bond insurer, rose 4.5% after it restated higher earnings. Also of note was action in crude oil prices, which fell $1.73 to close at $124.23/barrel after hitting record highs once again last week.

I don't have a strong feel for the market on a daily time frame right now. The rally on Monday was stronger than I had expected going into the day and opens the door now for another test to highs before a larger weekly correction occurs. Action was still bullish into Monday's close, so there is room for another move higher early this week. A main concern I have for the bulls is that volume was lighter on Monday than it was during the selloff last week. Although the Nasdaq can easily break last week's highs, the S&Ps and Dow will have more difficulty without the volume to back it up.

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.