Good morning! The market continued its gradual correction from last week's selling going into Tuesday. The open was pretty flat, but once the 10:00 ET economic numbers came out, selling hit very quickly. The consumer confidence index fell to 86.6, the lowest level since Oct. 2003 and well off 105.5 from August. This was larger than the expected decline and the strong pace of the selloff meant a slower correction off the 5 minute 20 sma support in the Dow Jones Ind. Ave. and NASDAQ Composite. The market based at that zone for about half an hour before breaking lower on a 5 minute Avalanche pattern that took the SP500 into the prior afternoon lows.

The pace on this second wave of selling was slightly less than the first one, but a gradual move off the lows into the 5 minute 20 sma opened the door for one more even more gradual move to the downside. This third wave held lows and the market began to correct on the larger 15 minute charts over noon. The correction came with light volume and the 15 minute 20 sma overhead for resistance. Throughout this move the risk in the market as a whole remained very high going into the 13:00 ET reversal period. 
 

The pace, volume and trend placement of the mid-day correction created a nice early afternoon short setup on the 15 minute charts. The NASDAQ had the most room to move since it had not tried the prior day's lows like the SP500 had. As soon as that 13:00 ET reversal period hit, a typical breakout time, the market dropped. The NASDAQ managed to put in an equal move on the 15 minute charts just before 13:30 ET. Volume increased to indicated exhaustion and the equal move price support, as well as prior lows in the SP500, helped end the selling at that level.

The rapid pace of the correction off early afternoon lows made it difficult for the market to test them again. After quickly rallying back to the mid-day price zone, the market fell into a range out of the 14:00 ET reversal period on the 5 minute charts. Volume dropped and the market based into the 5 minute 20 sma, forming a buy pattern on that time frame going into the last hour of the day. Greenspan's commentary in the afternoon also assisted in this late day rally, but once it hit the 15 minute 200 sma and the 5 minute equal move resistance on the breakout, that excitement waned and the market pulled back into the middle of the day's range by the close.

On Wednesday we have a couple of scenarios that could play out. The daily charts are favoring the lower end of this range, which is more bearish, but with nearly two weeks of selling, the last week's worth of correction is not enough for a strong breakdown to equal that entire move. Should the market break lower tomorrow, which is possible since the current 120 minute correction is similar to the one from the 15th-20th, it would create a third wave of selling on the 120 minute charts. In this case, the 200 day sma in the SP500 will be strong support. I would prefer that the market put in a longer correction off the support over the next week or two to form a larger setup, however, which would make the 20 day sma resistance and mean more choppy action during that time.

Updates: Swingtrades: VRTX from the 12th hit most trailing stops on Friday. Position trades: HSP and CHRS long have support at the lows of the weekly bases. CHRS stopped out some folks on Tuesday, but is holding the 20 week sma support. I am looking at acquiring NTRS as a position trade buy on upside breakouts from the current range on the weekly chart, but it needs to hold the 20 week sma level to stay on my watch list. HCA as a position trade short from 9/20 hit trailing stops for a swing, but a larger position trade target is in the $43 zone. UFPI long from Monday will have support at the 20 day sma, while PWAV fro long from Monday has support at $12.00. FRK from Tuesday also has support at its 20 day sma.

Economic Reports and Events
Sep 28: Durable Orders for Aug (8:30 am)
Sep 29: Chain Deflator-Final for Q2 (8:30 am), GDP-Final for Q2 (8:30 am), Initial Claims 09/24 (8:30 am), Help-Wanted Index for Aug (10:00 am)
Sep 30: Personal Income for Aug (8:30 am), Personal Spending for Aug (8:30 am), Mich. Sentiment -Rev for Sep (9:45 am), Chicago PMI for Sep (10:00 am)
Oct 03: Construction Spending for Aug (10:00 am), ISM Index for Sep (10:00 am), Auto Sales for Sep (12:00 am), Truck Sales for Sep (12:00 am)
Oct 04: Factory Orders for Sep (10:00 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Sep 28: KMG (?), RHAT (A), RIMM (A)
Sep 29: FDO (B), PEP (B)
Sep 30: -
Oct 03: CMGI (A), MOS (B)
Oct 04: -

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.