Good day! Things were slow once more on Monday. The shortened trading day, followed by Tuesday's holiday left many participants taking the day off and the light volume that began on Friday persisted throughout the day. The session began with a slight upside gap, taking the indices back up into the highs of Friday's range within a few minutes of the open. The prior afternoon highs held perfectly when the 10:00 ET economic data came out.

Construction spending fell by an unexpected 0.4% in May, the largest decline since Sept. '04.  Economists had anticipated a 0.2% increase. The Institute for Supply Management's index also dropped, landing at 53.8% for June, down 0.6% from May, as opposed to the expected 0.5% increase. This indicated a slowdown in expansion. The immediate effect felt by these releases was a quick move back to intraday lows, but there wasn't enough volume to sustain the selling.

After retesting intraday lows in the S&P 500 and Nasdaq Comp., the range on the day continued to contract. A triangle (aka wedge) formed on the 2-5 minute charts with the Dow Jones Ind. Ave. showing the most relative weakness. While the S&P 500 and Nasdaq Comp. held the triangle into lunch, the Dow, which had not yet come into morning lows, also managed to move into that support zone, hitting with the 11:00 ET reversal period.

The test of support in the Dow and the late morning reversal period both helped the market begin to turn around into noon. Volume didn't really pick up, but the market began to move steadily higher mid-day. The S&P 500 led the way, quickly making new intraday highs. The buying was steady throughout the remainder of the session and the indices closed near highs, although the Dow and Nasdaq were unable to break Friday's resistance. The Dow ($INDU) rose 77.80 points, the S&Ps ($SPX) climbed 9.99 points, and the Nasdaq ($COMPX) gained 18.34 points on the day.

My outlook this week remains the same as on Monday. The indices are currently favoring the formation of a weekly triangle and the prior daily highs from May will be very strong resistance. The Nasdaq Composite will have the most difficult time due to greater overhead resistance from 50, 100 and 200 day simple moving average levels, as well as June highs. It had also fallen the furthest from the year's highs and hence has a lot more ground to cover to be able to recoup the losses. As a result, while I can easily see the Dow and S&Ps trying to trap folks at another test at the upper end of the current weekly range, the Nasdaq is a lot less likely to even make an honest attempt.

Economic Reports and Events
July 5: Auto and Truck Sales for June (12:00 am), Factory Orders for May (10:00 am), Crude Inventories 6/30 (10:30 am)
July 6: Initial Claims 7/01 (8:30 am), ISM Services for June (10:00 am)
July 7: Average Workweek, Hourly Earnings, Nonfarm Payrolls and Unemployment Rate for June (8:30 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
July 5: -
July 6: LI (A), TIBX (A)
July 7: -
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.