The market was extremely choppy on Monday. After trending strongly to end the week, the indices were all over the place at the beginning of the new one. The market opened slightly lower into the lower end of Friday's uptrend channel and the Nasdaq pulled higher to attempt to close the gap, while the S&P 500 could not shake the open and fell into congestion right away. At 10:00 ET this uninspiring trading became a bit more lively with the release of the housing data. The number of unsold homes hit a 16-year high last month and within a few minutes the market was making new intraday lows.



Despite the stronger action out of the open in the Nasdaq Composite, the indices diverged in the opposite direction following the 10:00 ET data. All three indices flushed lower at 10:00 ET, but the Nasdaq and S&Ps then based and continued lower again while the Dow Jones Ind. Ave. held that low and fell into a more bullish congestion and trading range. It was not until the 11:15 ET reversal period that the rest of the market also began to turn back around and those reversals were not terribly pretty. The Nasdaq and S&Ps flushed into 12:00 ET, and while the momentum was strong, the move was brief and the volume was light. This meant that the selling, while steep, was not much of a concern and did not have a lot of players.



Momentum turned over into the early afternoon, moving higher with several steady moves on the 1-5 minute time frames. The cleanest trend was on the Nasdaq Composite, where a nice three-wave trend move took the market back into the opening congestion. The Dow, as a result of its greater strength in the latter half of the morning, was able to close its morning gap with this rally, closing it coming out of the 13:00 ET reversal period. Another three-wave trend followed, but this time it was on the downside into 14:00 ET on the 1 minute time frame. It took back a huge chunk of the early afternoon buying, but the momentum was not extreme and a second test of intraday highs took place shortly after 14:30 ET when the Nasdaq broke the highs of that early afternoon level and retested the morning highs, which were slightly above the early afternoon ones.



Whenever the market establishes a very slightly higher high after pulling back by 50% or more, the risk is higher that the market will form a 2T pattern, which is a type of double top with a very slightly higher high. The slightly higher high creates a bit of a trap and can lead to some strong selling as long as the upside on the second high is slower than the first. This was not really the case on Monday afternoon, so the market found support in the zone of the 14:00 ET zone. The momentum did change after this second test, holding the 5 minute 20 sma and the market was able to sell-off again into the close. The end result was a loss of 56.74 points in the Dow, 12.58 points in the S&P 500 and 15.44 in the Nasdaq Composite.

The afternoon selling in the indices triggered an Avalanche short pattern on the S&Ps and a 2T/double top on the Dow on the 60 minute time frame. The slowing and rounding off at highs on this time frame has opened the door on Monday to further downside into the morning on Tuesday even though the daily charts still have room to wiggle. I want to be very careful to not just assume that because there is some room to move that it means it will. The continued weakness is more plausible given the intraday action going into the morning.

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.