Good day! The market had a bit of a rough time on Tuesday as it continued to correct off Monday's morning rally. It did indeed have a great deal of trouble trying to break those highs as discussed yesterday. The open for the session was relatively unchanged since the previous day, but the 15 minute 20 simple moving average kept a lid on potential buyers. The indices instead ended up wedged between the previous afternoon's lows and that 15 minute moving average and the trading throughout that period was very choppy, showing very little directional bias.

The fact that the market was stuck in that range after Monday's strong decline added weakness to it, but the somewhat rounded lows that were created as the S&Ps tested the lower end of the range created enough trapping action and enough of a flush for eager reversalists. The result was more hesitation on the part of the bears so that despite the low level base, the market was unable to mount any significant breakdown mid-day.



The indices did attempt a final false start to a range breakdown into noon, busting the lower trend channel line from intraday on the Nasdaq's triangle on the 5 and 15 minute time frame. A significant drawback to this pattern as anything other than a scalp, however, was the fact that within the triangle itself, the indices were beginning to show some greater strength on the upside move. The breakdown into 12:00 in the Nasdaq was actually a slower-paced move than the bounce at 11:15 ET that preceded it. As a result, I was unwilling to commit to any larger time frame short and instead waited to see how the reaction out of 12:00 ET would pan out. If it had moved back to the 15 minute 20 sma at a slower pace, then that would have created enough of a change in momentum to a again break it to new intraday lows even though the S&Ps feeble attempts earlier in the session remained a hindrance. Alas, this was not the case. Instead the bounce off the support maintained an average to stronger-than-average momentum and quickly returned the market to the upper trend channel from the morning's range.



As the 13:00 ET correction period approached, the indices began to form a small base along the upper trend channel. Volume declined as it did so. This created a small upside continuation pattern that triggered into the correction period. Since the break also meant that the resistance which had held the indices in check all day was also broken, it left the market free to pursue a retest of the previous session's highs. It fell a little short on the initial run, but consolidated with some very choppy trading into 14:00 ET and then took another stab at those highs coming out of that correction period. This time the retest was complete.



Unfortunately for late-comers, the previous day's highs were a very significant resistance level and as such I began to look for reversal opportunities off the highs. The indices got off to a slower start given the strong little pop higher into 14:30 ET that made it necessary for the pace to turn back around to allow for some more decent downside, but it accomplished this with a tiny 2T on the Dow at about 14:15 ET and then 5 minute Avalanche setups into the 15:00 ET correction period. This drop took the market quickly into the next main support at the 15 minute 20 sma.

This previous level of resistance was now a new level of support, but the momentum heading into it kept the buyers somewhat on edge and unwilling to commit to a strong bounce right away. Instead the final 40 minutes or so of the day began with a bit more chop as the market played a short game of tug-of-war before yielding to the bears once again into the close. The result was a loss of 2.93 points in the Dow ($DJI) and 0.98 in the S&Ps ($SPX). The Nasdaq still held onto minor gains of 9.23 points ($COMPX). Since the breakdown in the afternoon also triggered a 60 minute Avalanche in the Dow, double top in the S&Ps and 2T in the Nasdaq, I am expecting further weakening into Wednesday.

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.