Although Monday's session ended mainly in positive territory, that fate was not well-established until the final hour of trade. The bears held the helm throughout a large portion of the session. Heading into the morning we had been expecting the potential for a bit of corrective action off Friday's afternoon lows, but followed by greater downside. The correction up off support was a little split though. The Nasdaq ($COMPX), which had extended gains to a much greater degree on a daily time frame, thus creating a bull trap type of pattern on Friday, had a harder time than the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI). Both of these indices hit highs three weeks to a month ago.

It is often said that one should short stocks or sectors showing the greatest relative weakness and buy those displaying the greatest relative strength. In truth, however, this is not always the best strategy. Often those securities which hold on the longest to a bias can have the strongest moves once they give way to the pressure already at play in the broader market. The greater the extension, the faster the rebound can be. Over the past two sessions, that has been the fate of the Nasdaq Composite.

Dow Jones Industrial Average ($DJI)


Both the S&P 500 and Dow Jones Ind. Ave. gapped slightly higher on Monday into the opening bell. The index futures had rallied on Sunday, accounting for the gains. The indices had then chopped around in Monday's premarket action, but the Nasdaq fell apart at the bell. Friday's selloff resumed on a large scale and the index plunged lower in the first 20 minutes of trade. The S&Ps and Dow also pulled back in the first 20 minutes off the highs of the opening bell, but the corrections were very minor. In the Dow it was more of a trading range, which broke higher with a strong move back into the previous 15-minute high from Friday around 10:15-10:30 ET.

S&P 500 ($SPX)


At the same time as the Dow ran into price resistance at earlier 15-minute highs, the S&Ps and Nasdaq also landed at the doorstep of resistance. The S&Ps remained stronger than the Nasdaq and pushed through the 5-minute 20-period simple moving average and into the 15-minute 20 sma. Meanwhile, the Nasdaq could not shake its own 5-minute 20 sma, which served as strong resistance near the zone of the opening prices. The market pulled back off these levels, but volume declined and the momentum was gradual in both the S&Ps and Dow. The downside continued to be stronger in the Nasdaq, which retested the morning lows at the same time as the stronger Dow hit its 5-minute 20 sma support.

Following this initial back and forth action in the indices, the market's momentum continued to shift. The upside slowed, while the downside picked up. This shift reached completion into the 13:00 ET correction period. At that point the S&Ps and Nasdaq were testing the 15-minute 20 sma resistance intraday on a third wave within the congestion. This is a typical point for a break from a range to give way and it did so quite well on Monday. Unfortunately I didn't make it back from a mid-day errand to catch the drop myself, but it was nearly textbook and brought with it some of the additional downside we had been expecting this week. In fact, it took it right smack into the first Nasdaq Emini (NQ) support zone that I gave yesterday of 1950 with a low at 1950.50, just two ticks off.

Nasdaq Composite ($COMPX)


The Nasdaq hit its larger support at the same time as the stronger Dow found support once again from Friday's lows. This came shortly after 14:00 ET around 14:15. The Nasdaq had a small 2B pattern on a 2-minute chart at that time with a lower low of just a tick or two on that time frame that helped form a small reversal pattern. This ended up being a rather decent move on a 5-minute time frame as well though and the Dow and Nasdaq both popped back into their 15-minute 20 sma levels. The S&Ps hit the 5-minute 20 sma at the same time and the market pulled back into 15:00 ET. News from Apple (AAPL) relating to its latest phone rocked the market a bit in the final two hours of trade. It had appeared that the market may attempt another push lower into the 15:30 ET correction period, but the boost in the tech stocks helped the indices close up off the lows.

The Dow gained 70.51 points on Monday and closed at 12,280. The S&P 500 gained 1.08 points and closed at 1,361.76. The Nasdaq Composite lost 15.10 points and closed at 2,459.

After two days of selling, the market was was shaping up for another bounce off support on a larger time frame. I had been hoping that we would see the 15-minute 20 sma hold as resistance past the closing bell since 2-day trend moves that hold this resistance level often offer strong intraday reversals on the third day of the trend. Despite the move lower in afterhours trade, the 60-minute time frames are starting to look like we will see a larger correction off support this week. There is room for another lower low first, however, with 2B potential on the Nasdaq. The larger weekly charts also remain bearish, which means that corrections off the 60-minute support levels can easily be very temporary. We will have to see how the momentum action plays out here though to get a better feel for the next wave of action to come. Slightly lower lows on a 60-minute chart with slower selling than the past two days will more likely pop the market sharply higher and this would not be as ideal for the bears unless it can then roll over at highs.

NQ (Nasdaq 100 Emini) support levels are 1950 and 1900. ES (S&P 500 EMini) support is at 1338. YM (mini-sized Dow Jones Ind. Average) support levels are 12000 and 11800.

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.