Good day! So far my bias heading into the middle of last week is following through pretty well. The support at the NASDAQ's 200 day sma has held nicely and the correction off of it if much stronger than the last correction from the second week of January. Overall though, it's been slower and choppier than the decline, which is right in line with expectations.

Tuesday's session was a nice continuation of the correction off last week's lows. After Monday's very narrow trading range, we saw a better trending day. The market had a great deal of divergence, however, which added an element of risk. The NASDAQ greatly underperformed as compared to the SP500 and Dow Jones Ind. Ave. which became evident within the first 30 minutes of the day as the NASDAQ pulled back much more than the SP500 and Dow out of the open, coming into its 5 minute 20 sma support.

The market saw an initial breakout from morning highs about an hour into the day. The pace was not very strong, but it was steady. The SP500 and Dow really had the best moves with the NASDAQ faltering and chopping around a great deal. Throughout the move since the 15 minute breakout, there were only very small continuation setups on the 1-2 minute charts going into noon, not really giving much for lower risk, larger time frame setups if you missed the initial breakout.

The noon reversal period held perfectly, leading to a pullback into the early afternoon. The SP500 was coming into its 30 minute 200 sma zone and the 50 day sma, while the NASDAQ was hitting its 100 day sma. I made the mistake of shorting the stronger SP500 instead of the lagging NASDAQ and barely covered commissions, but the NASDAQ saw a better drop into the 15 minute 20 sma.

While the NASDAQ dropped, the SP500 and Dow actually fell into a very nice range at highs. I didn't expect much out of it though with the larger time frame resistance in the SP500 still just overhead, so it was a very scalpish breakout. It came right out of the 14:00 ET reversal period, which was a huge pro and the volume decline into the breakout helped as well. It led to a better test of the higher resistance, holding it very well as the NASDAQ also came into its prior highs intraday.

The slower pace into the NASDAQ into morning highs with volume remaining light helped indicate that the market was looking to drop into the last hour or so of the day. The pace picked up nicely on the downside as the NASDAQ's 5 minute 20 sma gave way with the 15:00 ET reversal period and the market fell into support from prior 5 minute lows going into the last reversal period of the day at 15:30 ET. There the NASDAQ put in a small double bottom for a quick scalp move into the close as it pulled back to the 5 minute 20 sma resistance.

With the Fed on Wednesday, along with the State of the Union address, it is looking to be a slow day. The State of the Union begins at 9:00 ET with the Fed expected to raise rates with the 2:15 ET announcement. Typically a Fed day starts with some upside in the morning, followed by light mid-day volume and then a great deal of post-Fed volatility. The mornings and then the last hour of the day tend to be the best trading times on a Fed day. The State of the Union is an additional factor this time though, so risk at that time will be higher even if nothing unexpected is said since it will take some attention away from the market.

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.