Good morning! After two days of congestion in the market, the indices began to sell off after the first 30 minutes of the day on Tuesday. This manifested in the decline we were looking for heading into the day. I had anticipated a gradual selloff, but the Nasdaq had a much stronger move than the rest of market. The initial decline continued until the 10:15 ET reversal period. This led to a break in the prior afternoon lows in the Nasdaq, but that support level held in the S&P 500 and Dow Jones Ind. Ave. At that point the indices formed a bear flag over the next thirty minutes or so and it was coming out of that flag that the Nasdaq really began to lose ground.

The second wave of selling intraday continued until 11:00 ET. At that reversal period the volume increased significantly, particularly in the Nasdaq, creating an exhaustion move as the momentum surged. The 11:00 ET reversal period held perfectly and the market again fell into a slower correction. The volume dropped off nicely as the indices moved into their 5 minute 20 sma resistance. This hit between 11:30 and 11:45 and held, leading to a third morning decline which took the indices into the 12:00 reversal period. This time the Nasdaq was so much more extended than the S&Ps and Dow that it barely broke to new lows before the reversal period hit. The Dow, however, had a more measured move, leading to equal move support when the Dow and S&Ps came into the prior day's lows.

The momentum turned around into the early afternoon, with the indices rising quickly to their 5 minute 20 simple moving average resistance as they held the larger 60 minute range as expected. They then began to hug the resistance as volume fell, creating a Phoenix buy setup which triggered perfectly with the 13:00 ET reversal period. In the Nasdaq this was also a reverse Head and Shoulders pattern. The breakout continued strongly into the 15 minute 20 sma and the 5 minute 200 sma in the Dow and S&Ps where they again fell into a congestion period. The second breakout took the market back into the upper congestion from the prior day and it then held that level into the close with very little difference from the prior day's close.







The bias on the 60 minute charts has not changed much in the last couple of days. The indices are still favoring a range heading into Wednesday. The momentum has picked up a little bit now for the bulls, but I would like to see a more gradual correction off the highs of the range than we saw on Tuesday morning to really cement that bias. If that doesn't happen on Wednesday, then it will be easy for the market to fall apart and quickly take back last week's Fed gains.

Economic Reports and Events This Week
Monday: ISM Services for Jan. (10:00 am)
Tuesday: -
Wednesday: Productivity - Prel. for Q4 (8:30 am), Crude Inventories 2/2 (10:30 am), Consumer Credit for Dec. (3:00 pm)
Thursday: Initial Claims 2/3 (8:30 am), Wholesale Inventories for Dec. (10:00 am)
Friday: -

Key Earnings Announcements This Week
Monday: ATRS, CTSH, HERO, HUM, IPS,OSTK, PMI, APC, BLKB, EW, IKAN, LVS, QSII, RCII, SOHU, TZIX, and WMS
Tuesday: ADP, RATE, ELNK, IACI, ISE, LFUS, NOOF, TYC, WWY, ACTS, CELL, BOBJ, CAKE, CSCO, XRAY, WIRE, GCOM, IVAC, RENT, TWTC, and TZOO
Wednesday: ARXT, DTV, NRGY, ICE, MEDI, NSW.A, OSIS, SNWL, AKAM, ACL, ROCK, MOGN, PACR, and DIS
Thursday: AUO, CSK, CXW, DO, ESRX, FLIR, RAIL, GCA, LCLT, MGAM, PMTI, PENN, PEP, Q, RAI, TRB, WMI, KAR, BMC, BRCM, CSTR, DRIV, DIVX, DRRX, EQ, ITMN, LPNT, NAPS, NEW, PNRA, PWAV, SIMG, SPRT, and VSTA
Friday: ALU, CVH, MA, NNI, QMED, WY, and WLSC
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance and Briefing.com. Occasionally changes will occur that are made after the posting of this column. This list is not a complete list of earnings, so always double check your positions!

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.