The market did things a bit backwards on Monday as compared to what I had been expecting going into the day. I was expecting upside in the morning and then a late day reversal. Instead the market displayed greater weakness throughout the morning and turned around into highs in the afternoon. All said, however, it was still the choppier type of indecisive trading that we HAD been looking for. This was particularly the case throughout the first half of the day.

The indices gapped very slightly higher into the open on Monday, but while many individual stocks did gap higher, they also hit resistance with the gap. As they pulled back, so did the overall market and the gap was quickly squelched. Support hit close to the 9:45 ET correction period and the market began to move up off the early morning lows, but the momentum in both the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) were slower than the earlier selling. The Nasdaq Composite ($COMPX) managed to make its way to new intraday highs, but all three indices turned over once the 10:15 ET reversal period hit and were soon back at the earlier support levels.



At that point the volume was showing a great deal of wariness. It dropped off as the indices hugged support, favoring a late morning breakdown. The financials and broker/dealers led the selloff, falling very sharply to new intraday lows. Goldman Sachs (GS), Bear Stearns (BSC), Capital One Financial Corp. (COF), and Prudential (PRU) led the fray. These sectors were not the only ones feeling the sting. Retailers also had a hard time. Target (TGT) kicked off a new intraday downtrend that would last throughout the remainder of the session and Kohls Corp. (KSS) and Penney J C (JCP) also had strong selloffs.



Despite the great show of weakness as the market fell sharply from its morning congestion, the indices were unable to maintain such momentum once they ran into support from Friday. Keep in mind that despite the selling, the larger daily bias was still in favor of some additional upside. The market again began to congest along intraday lows over noon. The upside was a bit more than before and the market broke down too early to sustain another sharp decline. For the bears to have regained real control, the market would have had to have based along the lows into about 14:00 ET. Instead, the market broke down into 13:00 ET and created only a slightly lower low, allowing the pace to turn over into the afternoon as the choppy trading formed rounded lows mid-day.



The market showed some gumption shortly after 13:30 ET originally by popping quickly back to the highs of the mid-day congestion. The bias really began to look favorably upon the bulls on the pullback that followed, however, when the indices pullback back into the lower end of the range and continued to round off. Since I had missed the morning drop by taking lunch just a few minutes too soon, this was my first futures trade of the day. I picked up the NQ at 14:20 ET at 1886.25.

The first resistance on this late day turn-around was just above the previous 5 minute high and then the market based slightly into the 15:00 ET reversal period before heading into the second and more substantial resistance at the morning highs. The pace slowed at this level and the market spent the rest of the day pulling back with continued selling after the bell.

Going into Monday, I had anticipated greater overall strength and a stronger push into the daily resistance from a few weeks back. The Dow did gain 42.27 points, but the S&P 500 lost 0.39 point and the Nasdaq Composite only added 3.56 points. This means that the market still has that overhead room to move on Tuesday, whereas a stronger upside on Monday would have made it more likely for the market to have fallen on Tuesday.

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.