The market took a plunge Tuesday morning. The selloff began in afterhours trade on Monday and continued into Tuesday's opening bell. The extreme gap in the market was followed by congestion for the first 15 minutes of the day, but the support quickly gave way with a sharp continuation lower into 10:00 ET. President Bush spoke for some time on the state of the economy. His words were not taken in a positive light until he began to focus upon the exploration and development of national oil reserves. On that note, oil futures began to tank while the overall market turned quickly higher. At one point crude oil fell under $138 a barrel on the largest dollar decline in 17 years and the largest percentage decline since April 2005. It closed down 4.4% at $138.74 a barrel, but is still up 45% this year.

In related news, U.S. gasoline demand fell 5.2% last week. This marks the 12th straight week demand has fallen. With the retail price of gasoline at $4.109 a gallon, this is no surprise. I am hearing more commercials these days on public transportation than ever before. Interestingly, this is not always the best option. My local television station has been running a series on alternative means of transportation. My conclusion is that public transportation in many cities still has a long way to go in order to be an affordable, as well as timely, option. Sure, it may only cost a dollar each way, but if it takes you four hours to get to and from your destination when driving would take 30 minutes, is it really worth it? I think it would be safe to assume that for many it would definitely not unless they can take their work with them to help you pass the time. Hmm.... makes me appreciate the fact that my office is a mere hop, skip, and a jump across my courtyard... even if the housing disaster means I may have to live here until I am as old as most of my neighbors... *grin*

Dow Jones Industrial Average ($DJI)


After taking off and gaining momentum around 10:45 ET, the Dow Jones Industrial Average ($DJI) and Nasdaq Composite ($COMPX) quickly closed their morning gaps. This was accomplished shortly after 11:00 ET. The indices then proceeded to correct somewhat, pulling lower into their 5-minute 20-period simple moving averages. Although the correction was strong, the overall momentum on the 15-minute time frame had turned bullish on very strong volume. The indices were able to roll over at the support and continue to step higher on a 5-minute time frame.

After three waves of buying, the market hit resistance once again. The S&P 500 ($SPX) had now closed its own gap and was testing the 5-minute 200-period sma. All three indices were also at price resistance from the previous afternoon. They broke the trend channel from 11:45-13:15 ET, but prior 5-minute lows held at 13:30. This created a higher probability that the indices would form a two-wave correction for continued upside later in the afternoon. This took place shortly after 14:00 ET, but the market was unable to gain much momentum with the move and resistance held at the 15:00 ET correction period.

S&P 500 ($SPX)


When the indices turned at 15:00, they had now established three waves of upside on a 15-minute time frame. This exhausted the larger trend and allowed it to break lower into the close. The Dow Jones Industrial Average ($DJI) had gone from down 227 points in the morning to positive territory in the afternoon and back down to close lower by nearly 93 points at 10,962.54. This was the first close under 11k in 2 years. American International Group (AIG) lost another 8.5%, while Bank of America (BAC) also broke the 8% level, down 8.1% at the close. Chevron Corp. (CVX) fell 3.6%, while Exxon Mobil Corp. (XOM) lost 3.8%. General Motors (GM) rose 4.9% after announcing cost cutting measures included salary cuts.

Nasdaq Composite ($COMPX)


The S&P 500 ($SPX) fell 13.39 points on Tuesday to close at 1,214.91. The energy sector lost 3.9%, followed by the industrials which fell 1.5%. Six of the index's 10 sectors closed in negative territory. The gainers were led by health care, which rose 0.9%. The Nasdaq Composite ($COMPX) managed to close higher by 2.84 points, at 2,215.71. Intel's (INTC) afterhours earnings expectations helped hold up the techs. INTC gained 1.2% on the day.

Some additional news on Tuesday was also cited as contributing to the rally off Tuesday's lows. The Securities and Exchange Commission said that it would try to limit naked shorting in the major financials, such as Fannie Mae (FNM), Freddie Mac (FRE), Merrill Lynch (MER), Morgan Stanley (MS), and Goldman Sachs (GS). All closed lower on the day with FNM down 27.1%, and FRE down 26%.

Even though the market displayed another strong intraday showing on the upside on Tuesday, it has yet to offer any confirmation. Volume was high on Tuesday, but we still need to see some change of pace on a 60-minute time frame to support any larger correction off lows.

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.