The carnage continued on Tuesday with a nice bearish base out of the open. The market had pulled to the lower end of the trading range on Monday before it closed, so the fact that the indices stuck to that level to begin the day on Tuesday was not a great sign. I once again had a difficult time locating much for decent momentum plays out of the open, but Tuesday did follow through with the promise of being a more active session than the previous one had been.

After congesting for the first 30 minutes or so of the day, the indices gave way with a rapid plunge to new intraday lows. A second base took place into 10:45 ET. The declining volume throughout this congestion signified continued weakness and supported a second wave of selling into the 11:00-11:15 ET correction zone, thus completing three waves of selling on the 5 minute time frame beginning with the previous afternoon.

Along with the correction period, the market had quite a few reasons to move higher into noon. Friday's lows were hitting in both the S&P 500 and the Dow Jones Industrial Average, as were Friday's afternoon lows in the case of the Nasdaq Composite. The market also tends to break its trend channel after three waves of downside and will try to establish a larger correction before it continues. These traits opened the door for mid-day bounce off lows.

Due to the pace of the selling, however, the upside got off to a bit of a hesitant start, but managed to increase in momentum once the 5 minute 20 simple moving average gave way. The buying accelerated into the Nasdaq's 15 minute 20 sma and 5 minute 200 sma. This was also the 50% retracement level off the day's lows for the move off the premarket highs. The correction periods also came into play, since 12:00 ET is a common time for the market to reverse its course, or at least correct from the trend move heading into that time zone.



Almost right away upon striking resistance, the market began to again favor the bearish sentiment. The selling off the highs was much stronger than any attempt to retest them, particularly after 12:30 ET when the indices fell back to their 5 minute 20 sma and then just flatlined. This base along the moving average support created an Avalanche setup on that time frame which initially tried to break lower around 13:45 ET. The selling didn't gain steam until around 13:45 ET, however, when the market finally dropped back into the morning lows, hitting them at the same time as the 14:00 ET correction period. Although I attempted to play this pivot, the larger 15 minute charts were still very bearish and I only managed to come out of it with a small scalp gain before I had to step aside in favor of another new intraday low into 14:30 ET.

After 14:30 ET things became quite a bit choppier. The market finally managed another larger correction off support, but there was a great deal of overlap on the bounce and it did not amount to much in terms of a price correction. Once the 15 minute 20 sma hit again then all bets were off and the bears led the way into a close within a few ticks of the day's lows.



Tuesday's selloff has provided us with that additional flush into support that I first talked about on Monday. The momentum of the move, however, does not have me looking quite yet for many buying opportunities. I would like to see a bit of slowing and rounding off first. The Dow fell more than 200 points on Tuesday (-207.61, -1.6%), with 29 of its 30 component stocks posting losses. Wal-Mart (WMT, -5.1%), who lower its guidance for the year, and Home Depot (HD) were particularly hard-hit. The S&P 500 fell 26.38 points (-1.8%). The Nasdaq fell 43.12 points (-1.7%). The worst sectors included broker/dealers (-3.1%), financials (-2.9%), and airlines (-2.6%).



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.