Good day! The market's recent tendency towards strong reversals on the 15 minute charts and with overnight trading continued Tuesday with another strong upside gap into the open following the most recent inflation data. The producer price index rose 0.1% in July, under expectations, while the core PPI (excluding food and energy) fell 0.3%. This was the first decline since last October and relieved some concerns of further rate hikes from the Fed, although Wednesday's consumer-price report will be more closely watched.

In other news, the NAHB/Wells Fargo housing market index showed a 7 point decline for August, down to 32, a 15-year low. Under 50 indicates a stronger opinion towards weakness in the housing market as new home sales are declining while inventories rise. Manufacturing also declined over the last month, with the Empire State Manufacturing index hitting 10.3 off a revised 16.6 in July. This was a lot larger than expected and marks another new low on the year.

Tuesday's gap marks the third time in a week that we have seen this type of overnight rally. As with the gap on Monday and on the 9th, an initial congestion for the first hour or so of the day at Monday's highs resulted in a breakout to new intraday highs. Both the Nasdaq Composite and S&P 500 used this rally to move to new highs on the week as well, but the Dow lagged and was unable to bust the zone of the pivot high from the prior day. Instead, this served as resistance and helped push the market into a trading range over noon as the pace on the upside slowed.

The norm is for most gaps of this size in the indices to fill. Like any type of resistance in the market, however, the more it is tested, the more likely it is to break. As such, I was not as bearish heading into lunch as I had been with the prior two gaps. The S&Ps were showing the most strength heading into the early afternoon within the trading range. It attempted a break higher shortly after 12:30 ET, but lacked the volume to sustain it and fell back into a range until stumbling into the 15 minute 20 sma support later in the day.

Things were starting to look a bit dim for the bulls out of 13:00 as the market attempted to turn over, but the congestion along the 5 minute 20 sma finally made up its mind with the 14:00 ET reversal period and broke higher off the 15 minute 20 sma. Despite the break to new highs on the day, the move lacked the momentum desirable of most late day breakouts. Although a few stocks did perform strongly on the session, many more broke higher and then proceeded to chop back and forth with a lot of flushing back into the range. This is reflected in the overall indices by a great deal of overlap from bar to bar on both the 5 and 15 minute charts. On the plus side, the trend remained in place until the last 15 minutes or so of the day when there was a slight pullback into the close, likely in anticipation of the morning's upcoming consumer price data.

The market has been very reactionary lately. We will continue to see that on Wednesday morning as well with a number of economic data releases still due out this week. The most highly anticipated is the morning's CPI. This can again create another strong gap the market in the morning. The Nasdaq has a lot of room it can now move to the upside since it cleared the 20 day sma zone on Tuesday. As long as the numbers come in with favor towards economic slowing, I am expecting that index to lead, despite its greater propensity towards relative weakness on most days. The Dow will still have to contend with the highs made on the 4th. The pace in that index is similar on upside and downside moves in recent weeks, so that will often make prior highs more significant resistance when they are tested a second time.

Economic Reports and Events
Aug. 16: Building Permits, Core CPI, CPI and Housing Starts for July (8:30 am), Capacity Utilization and Industrial Production for July (9:15 am), Crude Inventories 8/11 (10:30 am)
Aug. 17: Initial Claims 8/12 (8:30 am), Leading Indicators for July (10:00 am), Philadelphia Fed for Aug. (12:00 pm)
Aug. 18: Michigan Sentiment - Prel. for Aug. (9:50 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.
Aug. 16: ARXX, BEAS, BLI, CAI, CHRS, DAKT, HPQ, HOTT, NTAP, ROST, CRM, SNPS, TLB, EL, TWB, ZUMZ
Aug. 17: ARO, ADSK, BKS, BEBE, BRCD, CHL, CLE, CPWM, DELL, GME, GPS, HIBB, LTD, MRVL, NWY, JWN, SHLD, PLCE
Aug. 18: ANN, FL
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.