Good morning! The market had a really tough session on Tuesday, despite the positive start to the week. With volume very light on Monday morning's rally, it didn't take a lot to turn things around. By gapping sharply lower into the open in both the S&P 500 and Dow Jones Ind. Ave., the market broke the prior afternoon's base at highs and made it very difficult for the bulls to regain control.

Typically, a much larger than average gap in the indices will attempt to fill unless the market is at exceptional weekly or monthly resistance. I think that it was likely the fact that it was mainly the S&P 500 that had such a substantial gap that this proved not to be the case on Tuesday. The NASDAQ was more subdued out of the open and hence not as oversold. The gap still tried to hold up with the S&P 500 basing along the 15 minute 200 sma support, however. Then came the Google (GOOG) news...

The day began with weak economic data. Existing home sales dropped to two year lows,  the U.S. consumer confidence level also fell, and the Chicago PMI showed an unexpected decline in business activity in the Chicago region. To add to this round of bad news, Google took a plunge at 10:30 ET when the company's chief financial officer warned of its slowing growth. The stock fell about 13% immediately following the statement and the entire market responded with sharp selling.

The indices put in an exhaustion bar quickly in the NASDAQ as volume spiked sharply on the 15 minute charts. This helped round the market off at lows into lunch. The S&P 500 and Dow took a little longer. All three hit morning lows with the 11:00 ET reversal period. The S&P 500 and Dow then formed a 2B reversal pattern by putting in a slightly lower low at 12:30 ET at a slower pace, trapping new shorts and flushing more longs.

The move coming out of the Google news took away a lot of the potential for the afternoon in the market. The 2B in the indices managed to make it to the pattern's typical initial target at the 15 minute 20 sma, but this held firm into 13:30 ET and the market slowly crept lower until the last 45 minute of the day. Figuring that the market would continue to chop into the close, I didn't do anything new with the day after the 13:30 ET pivot. The Dow did form a sloppy Avalanche on the 5 minute charts, but was higher risk since the pace was similar on the up and downside moves into the early afternoon. Even though the larger daily charts now favored the bears, the similar pace meant that attempts to break lower would be more limited.

Intraday on Wednesday the market is fairly extended going into the morning. This is going to add some risk for new shorts out of the open. Overall, however, the daily charts of the indices are favoring more correction from the highs of the past few days. There is a lot more economic data coming out in the morning on Wednesday, but they will not likely have the same impact as Tuesday's did. We are still in a range on the larger daily and weekly charts, so I have been focusing primarily on gap trades lately and most of my activity has been in the morning. I will be approaching the rest of the week in the same manner and be willing to quickly switch sides should my larger bearish bias into the weekend not materialize.

Economic Reports and Events
Mar 01: Personal Income for Jan (8:30 am), Personal Spending for Jan (8:30 am), Construction Spending for Jan (10:00 am), ISM Index for Feb (10:00 am), Crude Inventories 02/24, Auto Sales for Feb (12:00 am), Truck Sales for Feb (12:00 am)
Mar 02: Initial Claims 02/25 (8:30 am)
Mar 03: Mich. Sentiment-Rev. for Feb (9:50 am), ISM Services for Feb (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 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
Mar 01: ADCT (A), AEOS (B), AZO (B), CHS (A), CTB (B), CVTX (A), FLR (A), FL (?), THX (B), HOV (A), JOYG (B), LIZ (B), MDR (A), MHS (B), MW (4:00 pm ET), NVAX (?), OVTI (?), OS (?), PLL (A), PETM (A), REV (?), RDC (?), SKS (08:00 am ET), SPW (B), TLM (?), TS (?), WLT (?), WNR (A)
Mar 02: TFSM (B), CKP (B), CIEN (?), COST (B), CMOS (A), DT (02:00 am ET), FNSR (A), HOMS (A), INSM (A), KOPN (?), NTMD (B), NOVL (A), OPSW (A), PBY (A), SFCC (A), SCON (B), THC (B), PGR (?), UVN (A)
Mar 03: BVN (?)
Mar 06: ABP (B), CMGI (A), RIO (A), GG (B), KFX (A), LEXR (A), MYOG (A), SMTC (A)
Mar 07: ABS (?), SIL (?), MATK (A), NR /?), NRG (?), OSIP (A), PSTI (B), SRZ (?), COO (A), KR (?), URI (B)
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

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.