Monday was an interesting day in the market. The lack of bias that was showing heading into the open continued early on in the session. A slight upside gap quickly closed, but after finding support at Friday's lows in all three of the major indices, as well as Wednesday's lows in the Nasdaq, the momentum began to change and a stronger intraday bias began to emerge. From 10:00 ET into 11:00 ET the market pushed back into the lows, but refused to let go of the 5 minute 20 simple moving average resistance levels. It just slid lower with a great deal of choppy trading and on lighter volume than the first decline of the day. This tug-of-war eventually wore out the bears, which had been working hard since Friday to push for stronger tests of daily support. Soon after 11:00 ET they simply gave up and let go. The market soared.



Even though the market was rapidly gaining momentum, most of the stocks that would end up closing with the strongest gains on the day were not those that began the session on the gainer's list. This made it more difficult from my standpoint to really find decent, class-act setups in stocks since most of the setups were similar to those which took place in the indices. This meant that they rounded off at lows and then took off late in the morning, but only had 5 minute continuation patterns with bull flags and such on that time frame. So the scale of the setups made it difficult to scan for them and take advantage of them unless you just happened to have the charts up at the time these smaller setups formed or choose a few early on and just played those out intraday. Since my initial scans for the day resulted in almost nothing of interest in stocks, however, I didn't even bother to put much effort into scanning for them and stuck purely to trading the futures in Monday's session.

Some of the most notable gainers on Monday were BSC, MER, GS, FNM, FRE, MA, MBI, LVS, JCP, AAPL, FITB, ERTS, APOL, TROW, LRCX, WYNN, and NTRS. Notice that among the NYSE stocks many of the top performers were in the financial sector, which had suffered one of the strongest beatings in recent weeks. Merrill Lynch (MER) was even rewarded with an upgrade to buy from UBS. After checking out its weekly and monthly charts, I concur that the downside move is quite exhausted in that security at this point. The volume has spiked and its run smack into support from last summer. It makes sense that it will recover some of its recent decline in the near future. I don't expect the buying overall to be nearly as strong as the selloff though. Check out the drop into March and subsequent recovery to that selloff for an example of a typical correction following a stronger than average decline. Typically the correction off a second comparable drop in a row is even choppier than the first.



As the market pulled up off lows, it followed textbook technical rules very well. Three waves of buying into about 12:30 ET were then followed by a two wave correction into the 14:00 ET reversal period. The second wave of this correction was more gradual than the first on volume was lighter on the entire move off mid-day highs, creating a nice continuation to the upside right off the 15 minute 20 simple moving averages in the Dow Jones Ind. Average, S&P 500, and Nasdaq Composite.



The final two hours of trading once again took over where the morning rally had left off. Three waves of buying into 15:15 ET on the 5 minute time frame were followed by a slightly longer correction into 15:30 and a final move higher into the close. By the end of the day the Dow was back near Friday's highs and the S&P 500 was hitting previous 15 minute highs and its 15 minute 200 sma. The Nasdaq lagged behind on the afternoon upside and did not quite make it into those comparable price levels, but still managed to close a few ticks from the high of the day.



Monday's rally tacked on a whopping 286.87 points to the Dow ($DJI). This was the largest single day performance for an upside move since June of 2003 and it came within only a few points of recovering all of Friday's losses. The Dow closed at 13,468 with 29 out of its 30 stocks advancing. The S&P 500 ($SPX) rose 34.61 points after falling 39.14 points on Friday and closed at 1,467. The Nasdaq Composite gained 36.08 points, which was only a tad more than half of Friday's decline of nearly 65 points. It ended the session at 2,547.

Even though Monday ended up being a great deal more active for me than I had been expecting heading into the day, I am still leery going into Tuesday. Often a Fed day begins with some upside out of the open and then things slow down a great deal a few hours ahead of the 2:15 ET announcement. I tend to close down most of my level II windows and time and sales at this time to help prevent my computer from getting clogged up with data when the announcement hits on what changes, if any, the Fed plans on making in interest rates. Most believe they will leave them unchanged this time around.

The reaction to a Fed announcement tends to be pretty similar each time. There is usually an initial move, a corrective move which may be greater than the initial move, and then a third move back in the direction of the initial one. This takes place first on a 1 minute time frame and repeats on a 5 minute one.

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.