After falling apart on Monday afternoon in that strong reversal we had stalked, the indices were left dazed into Tuesday morning. As I mentioned yesterday, the odds were much higher for a more sustained follow-through on the downside this time around in the indices due to the larger time frame resistance which hit mid-day on Tuesday. This included the upper daily channel resistance in the S&P 500 ($SPX) and prior daily highs on the Dow Jones Industrial Average ($DJI), as well as the weekly resistance we have been stalking.

On Monday the market had broken lower into the afternoon and then formed a continuation pattern on the 5- and 15-minute time frames into the final 30 minutes of trade. Tuesday's session began with the advanced follow-through of this late day breakdown. A pop into the close on Monday helped shift the momentum somewhat heading into Tuesday, so even though the price bias remained focused on the downside, the momentum or pace bias was no longer as strong as in the prior afternoon. The market slid lower throughout the first half of the day, but each low barely broke the prior one before pulling back up to create a very gradual downtrend into noon.

Dow Jones Industrial Average ($DJI)


The market placement on the daily time frame and the upside exhaustion on that level kept the bulls from being able to gain any type of foothold over noon despite the slowing pace of the selling and the larger 15-minute time frame support levels which began to hit. The zone from Thursday's lows in the Nasdaq and the closure of the gap from the 14th in the Dow were primary support levels on intraday time frames. They corresponded to the 12:00 ET correction period.

By the time the 12:00 ET correction period hit, momentum had shifted on a 1 minute time frame to favor a longer correction off lows into the early afternoon. At this time the Nasdaq was forming a 5-minute Phoenix pattern under the 5-minute 20-period simple moving average on light volume. It triggered with the 12:00 ET correction period, but the larger time frames continued to apply pressure and the Nasdaq hit and held resistance from Monday's afternoon lows around 12:30 ET, while the S&Ps and Dow held resistance from earlier congestion intraday that had formed into 11:30 ET.

S&P 500 ($SPX)


A two-wave continuation short pattern developed in the early afternoon in the market on a 5- and 15-minute time frame. The bounce off 12:00 ET lows was the first wave. A second came at 13:00 ET. It had similar momentum as the first, but was more stunted and held the highs of the first wave. A break in the lower channel came between 13:15 and 13:45 ET. Once again the pace was nothing compared to the prior session's decline, but it was quite decent compared to normal market moves intraday. It took the Dow futures lower into the support from the lows of the 13th, which hit at about 14:14 ET, while the S&Ps and Nasdaq used support in the zone of Thursday's lows.

With just over an hour and a half of trade remaining in the day, the market was continuing to show a more difficult time making new lows on a 15-minute time frame and the action on those charts became rounded in appearance, suggesting that the remainder of the day would see a similar rollover off the larger support, while still holding back from any full throttle rally.

Nasdaq Composite ($COMPX)


At 15:00 ET the indices formed a nice little scalp pattern as a buy when the indices hugged the 5-minute 20 sma perfectly with slightly declining volume. This created a nearly textbook example of a Phoenix buy pattern on that time frame and easily brought the indices back into the range from the previous two-wave breakdown setup. Many corrections in a larger trend, even a gradual one like Tuesday's, come in two waves, so the bounce at 14:15 ET and Phoenix created another form of two-wave correction that favored a final turn lower. The 15:30 ET correction period helped accelerate this downside, but prior lows on the 5-minute time frame held and the market bounced back a little into the bell.

The Dow Jones Industrial Average ($DJI) lost 199.48 points on Tuesday, or 1.6%, to close at 12,819. The selloff was led by Home Depot (HD) (-5.2%), JP Morgan (JPM) (-5%), General Motors (GM) (-4.8%), and Citigroup (C) (-3.8%). Crude oil crept up to just under $130/barrel on Tuesday and the only oil and energy stocks benefited from this continued rally. The Nasdaq Composite ($COMPX) fell 23.83 points, or 0.9%, and closed at 2,492. The S&P 500 dropped 12.23 points, or 0.9%, and closed at 1,413. As the week progresses I am expecting the market to continue to correct off this week's highs. There is room for upside into the morning due to the support which hit at Tuesday's lows, but my upside focus will be short term intraday.

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.