Good day! The market closed strongly higher on Tuesday despite having a tough time earlier in the session. The Dow Jones Industrial Average ($INDU) gained 73.23 points, putting in a new closing high of 13,136. Top gainers included HPQ, HD, HON, MCD, and DIS. The S&P 500 ($SPX) and Nasdaq Composite ($COMPX) also managed to add some gains on the session, each climbing 0.3%. The S&P 500 rose 4 points, while the Nasdaq added 6.4 points.

The day began with a great deal of choppiness, resulting in large part from the drop into the close from the previous afternoon. At 10:00 ET several key data releases came out, which whipped the market back and forth, first to the upside and then to new intraday lows. The Institute for Supply Management released its manufacturing index. The index climbed to 54.7% in April, off the 50.9% reading in March. It was expected to come in at 51%. In additional news, the National Association of Realtors said that its index of pending home sales fell by 4.9% in March, down 10.5% from the same time last year.

Even though the market put in a low around 10:30 ET, the upside was equally indecisive. The market bounced back to the 5 minute 20 sma resistance, paused slightly, and then put in two more tiny upside moves which took it back to the zone from morning highs. In the Dow this corresponded to the 15 minute 20 simple moving average, while the Nasdaq hit its 15 minute 200 sma. After that things finally began to smooth out. The market turned over at highs and the downside pace increased, dropping off into noon. A range then formed into about 12:45 ET, followed by a second wave of selling at a somewhat slower pace. At that point I began to look for a 2B on the larger 15 minute time frames for a reversal into the remainder of the day. The 2B held in the Dow, while the Nasdaq put in a double bottom and the S&Ps formed a 15 minute Phoenix, breaking higher into 13:30 ET.

The market quickly gained momentum as it turned around into the afternoon. The indices took back nearly all the losses from the two prior waves of selling with just the first wave of upside off the afternoon lows. The market formed a small base along the resistance from the previous highs and then continued to climb out of 14:30 ET. This second wave of buying took the indices back into the morning highs where the S&P 500 held perfectly. On the 5 minute time frames the second move was equal to the first and this additional form of price resistance aided in another correction which lasted into the close.







Tuesday's action fit perfectly into my expectations of a correction via a trading range as opposed to a sharp decline as I expressed yesterday. In order to continue to confirm that bias, however, the market is going to need to hold the 20 day sma support. A narrower range holding Tuesday's lows is also possible, but would lead to a new high more quickly. With only one upside and then one downside move as the start of this range forms, if the market tries the highs too quickly, it can easily create more of a rounding off at the highs and risk a sharper correction after that. As long as the highs hold on the next smaller upside though within the intraday range, then another more solid bull flag can form on the larger daily time frame. Right now it's a matter of "wait-and-see," so I'll be focusing primarily on the intraday setups for now.

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.