Good morning! Following the extreme upside move going into late last month, which had the Dow up 6.5%, NASDAQ up 10.8% and S&P500 up 6.6% off October lows, the indices continued to let a bit of the wind out of their sails on Monday.  The day began with selling in the premarket that spilled over into the open. This set the tone for the morning.

After a bit of congestion when the NASDAQ hit prior 5 minute lows and the S&P500 came into its 5 minute 200 sma, the 10:00 ET Institute of Supply Management came out. The index showed a slightly faster-than-expected slowdown in the U.S. services sector last month, while the prices-paid component dropped to 74% from 78%. The market seemed to have been more hopeful. Soon after the data came out, the indices fell sharply to new lows.

The NASDAQ formed an exhaustion bar on the 5 minute charts into the 10:15 ET reversal period, but the extreme downside pace gave it room to try for lower lows before it could put in a larger correction off support. The S&P500 and Dow both began to slow a bit sooner and rounded off for more gradual lows, which left them more room for stronger mid-day corrections than the NASDAQ.

The market finally began to correct to the selling when the 11:00 ET reversal period hit. This pulled the indices up to their 5 minute 20 simple moving averages where they began to congest, hugging the moving average into noon. By 12:30 ET all three were breaking out of this 15 minute cup with handle/5 minute Phoenix, and forging their way into the 15 minute 20 sma resistance. This hit at about the same time as an equal move on the 5 minute charts as compared to the initial 11:00 pivot into the congestion. The SP500 also had more resistance with the 5 and 15 minute 200 sma. All of these forced the market into another small 1-5 minute base going into the early afternoon.

Initially the market hugged this resistance zone very well. Volume again declined, and it looked possible that a bull flag would form. Once the market had rested as long as the prior 5 minute base, however, it began to hug the lower end of the smaller range at the 5 minute 20 sma support. This change in pace within the range ended up preventing the 5 minute flag from triggering and pushed the market into a larger 15 minute range for the remainder of the day by guiding it back to lows, but more slowly than the 12:30 ET rally. This slower decline compared to the prior upside meant that, while the 15 minute charts were beginning to look more bearish, the bulls were still too strong within the trading range to allow for a breakdown.

Heading into Tuesday, the NASDAQ still looks weaker on the 15 minute charts, but the pace within the range is going to add risk to that bias. Ideally, if you are looking to short a breakdown, you want the market to bounce more gradually off support within the range and fall more quickly off the resistance. This allows for solid follow through on a short trigger. We simply don't have that at this time since the intraday pace is stronger for the bulls. This will typically mean a continuation to the choppier trading from day to day in the market as the indices correct more through time than price to begin with. At this time I am using more caution on new swingtrades and focusing more on intraday action.

Economic Reports and Events
Dec. 06: Productivity-Rev. for Q3 (8:30 am), Factory Orders for Oct. (10:00 am)
Dec 07: Crude Inventories 12/2 (10:30 am), Consumer Credit for Oct. (3:00 pm)
Dec 08: Initial Claims 12/03 (8:30 am)
Dec 09: Mich. Sentiment-Prel. for Dec (9:45 am), Wholesale Inventories for Oct. (10:00 am)
Dec 12: Treasury budget for Nov. (2:00 pm)
Dec 13: Retail Sales for Nov. (8:30 am), Retail sales ex-auto for Nov. (8:30 am), Business Inventories for Oct. (10:00 am), FOMC policy announcement (2:15 pm)

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 stock's earnings date 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
Dec. 06: AZO (B), BRCD (B), CMVT (A), NUAN (A), SHLD (B), KR (?),
Dec. 07: HOV (A), PLL (B)
Dec. 08: COST (?), CMOS (?), FLE (B), NSM (?), TOL (B)
Dec. 09: PPHM (B)
Dec. 12: COO (A),
Dec. 13: ADCT (A), BBY (?), MATK (A)

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.