Good day! The market had a very nice trading day to kick off the new week. After rounding off some at highs on Friday, we saw some weakness Monday. It started with a gap down at the open, but right into price support from Friday afternoon pivot lows in the NASDAQ. This helped the market hold up for the first 15 minutes of the day, but as the indices ran into 5 minute 20 sma resistance that move quickly came to a halt and the indices pulled into new intraday lows.

The morning's action was characterized by pivot trading. The support and resistance levels were pretty obvious and held very well. The second major pivot high on the 5 minute charts came with the 10:45 ET reversal period as the market hit prior highs. This began the selling that continued into the early afternoon. As the prior lows hit we saw s small correction, but the 5 minute 20 sma resistance held this time and the low level base led to a breakdown over noon. The market went right though the NASDAQ's 5 minute 200 sma with barely a rest and the selling continued into the 12:30 ET reversal period when the SP500 began to come into the 15 minute 200 sma and 5 minute 200 (SP500 and Dow) sma support zone and the market found price support from the prior several days.

With the mid-day drop, the market had a bit of room still to move before 15 minute support hit more solidly. This made it likely that we'd see slightly lower lows into the afternoon, but since the prior drop was so extreme for an intraday move, it made it unlikely that the break would be as strong. As a result, I watched for a small 5 minute Bear Flag in the Dow Jones Ind. Ave. and then a 2B pivot in the NASDAQ. I choose the Dow first because it had been trending better than the NASDAQ and when it started to base it held the 5 minute 200 sma without as much chop. Notice how well volume also dropped off during this base at lows and how it came right into the 5 minute 20 sma resistance before breaking lower.

You can see that coming out of the 5 minute Bear Flag, the market pretty much hugged the 5 minute 20 sma, making it likely that the market would break through that resistance at a stronger pace and that the market would hold pivot lows into the afternoon after the 2B triggered. The 2B came right out of the 14:00 ET reversal period, breaking strongly to the 5 minute 20 sma. Here we saw it fall into a base and I started looking for a 5 minute Phoenix to continue the afternoon pivot. This pattern actually set up more quickly than usual but went further than usual as well. Typically a 5 minute Phoenix stalls at the 15 minute 20 sma. In this case though, the market was able to stall only slightly to form a small Bull Flag on the 2 minute charts, leading to a third wave of buying on the smaller intraday charts before hitting resistance from morning trading levels.

Going into Tuesday I am not seeing much at all on the daily charts right now for setups, although the NASDAQ is really holding that weekly Avalanche pattern so I would start to look for stocks in that index for short patterns. The stocks we were following from last week (CVD and AFFX) from last Monday's column both corrected from last week's highs and I'd have adjusted stops on any remaining partials no lower than under Monday's lows in AFFX and $43 in CVD. ANF has yet to trigger.

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.