Good day! Tuesday was another sloppy session for the market, but volume increased quite a bit as compared to the previous day when I was trying to figure out what holiday was under way given the mass desertion of market participants in Monday's trading. Unfortunately though, the volume had very little to do with strong momentum players in popular securities and more to do with the direction the market took. As I've talked about over the past couple of day's, Friday's gap up on a premature breakout on the 60 minute charts opened the door for a trap and easier drops intraday off the rounded highs. For the second day in a row the indices gapped lower. The trap on Friday and the gap closure on Monday made it very difficult for the market to become too excited about closing the gap for a second day in a row. Even though the market opened and moved right into support at the lows from the previous several days, it reacted to that support by falling into a range as opposed to showing any real strength.

Most trading ranges in the market will start to exhibit a nice directional bias just prior to breaking out. Often this is done by favoring one end of the range over the other with a slower pace in the direction opposite the pending breakout direction. On Tuesday, however, the pace actually increased on the upside out of the 10:15 ET correction period so I thought that we might get a bit more of a pop on just a 5 minute time frame before turning lower into the early afternoon. Alas, the pace turned over only on a 1 minute time frame nearly right after hitting the resistance at previous intraday highs and NOT through a more gradual pullback on the 5 minute time frame. This created a tiny Avalanche into 11:30 ET that triggered what would end up being the strongest move of the entire session. It blew the chance for a decent bear flag continuation short at 12:00 ET by only stalling for a couple of minutes instead of holding to form the flag before continuing to move lower into 12:15 ET. This more extended downtrend now meant that a bear flag would have to form on a 15 minute time frame in order to see another strong momentum move on the downside.

So, after the mid-day decline, my focus was primarily on scanning for short patterns for later on in the day. As we moved past 12:30 ET, however, my hope began to dry up because even though the S&Ps and Dow still did a decent job holding the 5 minute 20 simple moving averages as resistance, the momentum had picked up a bit more on the upside than would be ideal and the Nasdaq went on to take back more than half the losses from the earlier drop, hence making a bear flag a lot more unlikely. I had been stalking MGM earlier in the morning for an upside breakout but wanted to see it base into the afternoon instead of triggering over lunch. No such luck. It triggered earlier and then became rather wicked, whipping back and forth, before it finally committed to a move higher into the close. Unfortunately, it did so without me! Whoops!







It was one of those days where a lot of things just weren't triggering at the same time in their pattern development as usual, and then would chop around a lot before continuing with their earlier bias, which made it more difficult for my style of trading and I scraped by with only modest gains. When it became apparent that we would not be seeing that afternoon breakdown I called it a day and wrapped up my trading day at about 14:00 ET. I did miss some late day buying when the failure of the bear flag confirmed as the upper trend channel from the mid-day correction off lows broke higher, primarily in the Nasdaq, but as a whole, even that move had quite a bit of overlap from one bar to the next on the 5 minute time frame and many of the things that had caught my eye on the daily charts did very little in the final hours of trading.

The end results for the day in the market were a loss of 80.86 points in the Dow ($DJI), 8.22 points in the S&P 500 ($SPX), and 7.06 in the Nasdaq ($COMPX). 27 of the Dow 30 closed lower, while the Nasdaq again outperformed.

It still seems about a day or two early for a strong continuation break on the upside from this daily range, but a bit of buying into the open on Wednesday is quite possible given the closing action on Tuesday. It would be better for the bulls if the previous Nasdaq highs were not quite so close, since another premature breakout is going to continue to round things off at highs and increase the odds of an even stronger correction off highs on the daily time frame as opposed to contributing to a strong continuation pattern.

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.