Good day! The pattern I pointed out forming into yesterday's close followed through very well in the early morning trading. It had pulled back up in the range after the closing drop, then fell into a bit of a range with Wednesday's open. The move lower out of the open was small to begin with, but picked up pace coming out of the 10:15 ET reversal period, falling very sharply on heavy volume. The pace of the selling plus the volume indicated that the move was indeed the return of the bears and not just a flush.

My initial target on the morning descent was the support at the 15 minute 200 sma on the NASDAQ intraday. As this hit, however, the selling only stalled before continuing rapidly into the 10:45 ET reversal period. It was only as this zone hit that we finally saw the market correct on the 5 minute charts. This put the downside move at much more than an equal move, helped out by the pace of the selling. It meant that mid-day action would be very high risk.

After such a steep move, larger than average and larger than the prior move, the market tends to correct through a narrow range. Then it might break early to form a type of double bottom or only slightly lower low before pivoting. If the range continues past the 5 minute 20 sma though on such a 15 minute drop, then the 15 minute 20 sma becomes the next major resistance to deal with. This move can pick up pace and break the moving average for a larger correction, or the pace can remain steady and the resistance will hold to lead to a breakdown.

The market chose the last path with the NASDAQ forming the best 15 minute Bear Flag. Notice that the length of Wednesday's mid-day correction was very comparable to the one into Tuesday afternoon. As the 15 minute 20 sma resistance hit intraday, the NASDAQ pulled down just a hair to hold the lower end of the corrective trend channel before breaking lower right into the 14:00 ET reversal period. The light volume and slow pace of the mid-day move, combined with the length of the base allowed for a strong drop going into the latter part of the day. This move was choppier than the prior one, however, as the Dow Jones Ind. Ave. came into morning lows. We saw some small 5 min continuation action into about 15:00 ET, but the move was not nearly as smooth as the morning's drop.

As the week continues, my bias is more bearish, but we should expect the action to be punctuated with corrections on the 15 minute charts. Since the SP500 and Dow Jones Ind. Ave. both broke well over 20 and 50 day moving average resistance, those two indices are going to be very likely to fall into a longer term trading range over the next couple of weeks. The NASDAQ will have better odds of trying for a new low. So far, VRTS stocks with similar daily patterns are following through very well. Watch out for moving average support levels and prior pivot lows for places to stall the moves.

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.