The market moved higher into the morning on Monday as we had been expecting, but it had a difficult time shaking off the bears that have had a hold of its pant leg over the past month. In the end, the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) posted gains on the day, while the Nasdaq suffered from an even further decline. As I mentioned last week, however, this is not surprising given the greater upside extension which leaves it with more room to go on the downside now.

The Dow Jones Industrial Average gained 3.50 points on Monday, ending the session at 11,350. In a true showing of mixed trade, half of the Dow's 30 components closed in positive territory on Monday, while the other half lost ground. The Dow has fallen 19.9% off its October 9th high of 14,165 with 10.2% of those losses taking place in June. For the quarter as a whole it is down 7.4% and for the year to date it has fallen 14.4%.

The S&P 500 also posted nearly insignificant gains on Monday. It rose 1.62 points to close at 1,280.00. This marked an 8.6% decline in June, a 3.3% loss for the second quarter, and a 12.9% loss on the year to date. It has fallen 18.1% since its highs on October 10, 2007 at 1,562.

The Nasdaq Composite ($COMPX) suffered the greatest blow. It fell another 1%, or 22.65 points, to close at 2,292 on Monday. It has dropped 9.1% in June, but it still closed positively on the quarter and is up 0.6%. On the year so far, however, it is down 13.6%. Since highs on October 31, 2007 at 2,859 it has fallen 19.8%.

Meanwhile, crude oil hit a record high overnight, hitting $143.67 in electronic trade. This created an upside gap in oil-related securities. Like the rest of the market, however, they were unable to hold onto all of their gains and pulled back into the close. The August crude contract closed at $140 a barrel on the New York Mercantile Exchange. Year-to-date, crude futures were up nearly 46%. 37.8% of the gains were in this past quarter with a 9.9% increase in June. This has pushed gasoline prices to record highs as well. The average retail price for a gallon of regular hit $4.086 on Monday, which is a 40% increase from a year ago. Motor gasoline demand is down 2.1% from a year ago.

Dow Jones Industrial Average ($DJI)


When the session began on Monday, I had been looking for some upside within about the first 45 minutes of the day, but was expecting it to hold up during that time within the congestion from the prior afternoon. After the 9:45 ET Chicago PMI came out, however, the indices slowly turned over and then fell sharply into 10:00 ET. The Nasdaq found support at Friday's morning lows, while the Dow moved into a slightly lower low on the 15-minute time frame, creating a 2B setup coming off the morning low.

Although the market moved higher throughout most of the remainder of the morning, it was not a strong enough shift in momentum to hold off the bears for long. At 11:20 ET the Nasdaq, Dow, and S&Ps all hit highs from Friday intraday which served as strong price resistance. The move up was a two-wave correction off lows in the Nasdaq and a three-wave push in the S&Ps and Dow. This created extension into 11:30 ET and the market began to slowly roll over into the early afternoon.

S&P 500 ($SPX)


The Nasdaq experienced the greatest weakness and easily held the morning highs, pulling back sharply into the 5-minute 20-period simple moving average. It then hugged that support level into 12:30 ET to create an Avalanche pattern on the 5-minute time frame. Meanwhile, the S&Ps and Dow retested morning highs, but still hugged the 5-minute 20 sma. They both turned around with the Nasdaq, but were not able to gain as much momentum on the selling. The Nasdaq fell back into the morning lows, hitting a very slightly lower low just prior to the 14:00 ET correction period. The S&Ps and Dow only pulled back about 2/3rds of the morning rally.

As on Friday, the 14:00 ET correction period did not hold perfectly. Instead of pivoting off the lows at 14:00 ET, it broke the downtrend channel at 14:00 ET. After increased selling the correction off the support was not particularly strong. By 15:00 ET it had become apparent that the indices were forming an Avalanche pattern on the 15-minute time frame. This came in the form of a reverse cup-with-handle as well on that same time frame. It triggered into the final 30 minutes of the day and the indices continued to fall strongly into the closing bell.

Nasdaq Composite ($COMPX)


Heading into Tuesday morning the market is still looking to favor its late-day bias from Monday. This means that it is going to be easier for it to break Friday's lows. At this stage, however, I am expecting it to only show a modest break. The odds currently are favoring a 2B on a 60-minute time, which can lead to another 2B on Wednesday or Thursday if the action off the lows is not very strong, which I suspect will be the case. A 2B, for those unfamiliar with the term, is a form of double bottom whereby the second low is slightly lower than the first. This would create a nice shift in momentum that would allow the market to bounce back into the end of the week and beginning of next.

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.