Good morning! The market took a bit of a turn on Tuesday after closing near lows the prior afternoon. As you may recall from yesterday's commentary, I had been hoping that the market would hold up Monday at the end of the day to form a Cup with Handle intraday and lead to an upside breakout the next morning. The last 30 minutes or so of the day, however, saw a sharper than anticipated selloff on a 5 minute Avalanche, leading to a weak close. On Tuesday morning though, the market gapped up into the upper end of that base that had been starting to form the Cup with Handle. This took back all of the late day losses and changed the pace once again to favor the bulls as long as the 15 minute 20 sma support could hold.

The market hesitated initially, but soon picked up speed to break out of the 30 minute range. The NASDAQ saw the strongest action, breaking to new daily highs and taking that index back into the highs of last December. The Dow Jones Ind. Ave. hit resistance the quickest, around 10:15 ET. After such a rapid rally, you have to use some added caution because you don't usually get as strong of a continuation. The Dow, having stalled earlier than the NASDAQ, was able to break out the best off the 5 minute 20 sma support while the stronger NASDAQ crept up more slowly, leading to a 2T pivot just after noon as it put in very slightly higher highs before pivoting. The SP500 and Dow helped out since they ran right into prior highs on the 15 minute charts at the same time.

I didn't have much of a strong bias going into the afternoon. The strength of the morning upside after just having rounded off at lows on the 30 minute charts seemed likely to hold up the market, but the pace was trying to turn over during lunch, making at least a little downside likely. This came with a retracement back to the prior breakout zone on the 5 minute charts from the 2T and then a small Avalanche that was most pronounced in the Dow on the 5 minute charts. When the 14:00 ET reversal period hit as the Dow put in an equal move drop on the Avalanche, the market held, bouncing quickly back to the upper end of the mid-day range.

This still didn't create a very strong direction for the rest of the day though, since we were starting to see the pace change back and forth rather quickly. Scanning through the stocks within the indices, I also couldn't identify any good risk to reward action. We did see a little bit of upside right into the close, but it wasn't very significant. The market still just held the prior highs on the 15 minute charts.

For Wednesday, if the market can manage to base a bit longer on the 60 minute charts despite all the earnings coming out, then we have a good chance at seeing the NASDAQ test those prior monthly highs even better.

Updates: VAR from last the 20th $38 around hit new highs the 27th at $40.70 before closing on the day with a base at highs ahead of earnings for swingtraders. For a larger position trade the weekly is still looking nice and I want the 20 week sma to hold as support. I still like NEW for an upside breakout on the daily charts and am watching HSP for a breakout on the daily and weekly charts. I expect that one to take a few more weeks to develop, however, since the 20 week sma is still catching up to the base.

Economic Reports and Events
Aug 03: ISM Services for Jul (10:00 am)
Aug 04: Initial Claims 07/30 (8:30 am)
Aug 05: Average Workweek for Jul (8:30 am), Hourly Earnings for Jul (8:30 am), Nonfarm Payrolls for Jul (8:30 am), Unemployment Rate for Jul (8:30 am), Consumer Credit for Jun (3:00 pm)
Aug 08: -
Aug 09: Productivity-Prel for Q2 (8:30 am), Wholesale Inventories for Jun (10:00 am), FOMC policy announcement (2:15 pm)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Aug 03: TFSM (A), ALVR (B), AIV (B), BCE (B), BAK (B), CPN (B), CNQ (B), CKFR (A), CI (B), CDL (B), CVS (B), DANKY (B), DF (B), D (B), DUK (B), EDS (A), ENCY (?), EXTR (?), FTI (A), GGB (B), HL (B), IDNX (A), BLUD (B), IO (A), KSU (B), LVS (B), MCCC (B), NAPS (A), NTIQ (A), NBIX (A), NBL (B), OCR (B), OSTK (B), PCG (B), PRU (A), QSII (A), RRI (B), SINA (A), SPW (B), SUN (?), SCON (A), SFY (B), TKLC (A), BCO (B), THQI (A), TWX (B), USU (A)

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.