After turning around on Monday into the late morning and early afternoon the indices continued to head higher throughout Tuesday's session. The Dow Jones Industrial Average ($DJI) gained 180.54 points (+1.4%) on the session. It was led by General Motors, which climbed 4.6% after announcing reduced spending on crossover vehicles and McDonald's (MCD), which moved 3.2% on a strong increase in August sales. The S&P 500 rise 19.70 points (+1.4%), while the Nasdaq Composite ($COMPX) climbed 38.36 points (+1.5%). Advancing stocks outpaced the decliners on the NYSE by 3 to 1, while they beat 2 to 1 on the Nasdaq.

Fed. Chairman Ben Bernanke let very little slip in his speech intraday regarding the potential for an upcoming rate cut next week and left market participants assuming that we would in fact receive a cut in interest rates. The volume was light compared to the volume from late July and early August, but held up well against the average of the last two weeks. There were still some decent moves though. Top gainers included Las Vegas Sands Corp. (LVS), National Oil Well Verco Inc. (NOV), Trina Solar Limited ADR (TSL), Agrium Inc. (AGU), Amgen Inc. (AMGN), Imclone Sys Inc. (IMCL), and Celgene Corp. (CELG).



Tuesday began with another gap higher for the second day in a row. Unlike Monday's gap, which took place after the market had turned around into the close on Friday, the market ended the day on selling on Monday, so it had no upside to already take out part of the potential on continued upside. After the open the market stalled, but it held onto the gains and moved slightly higher. Then the indices based into 10:15 ET. The volume declined a bit and the market popped coming out of the reversal period.

The morning breakout took the indices into very strong resistance on the 15-minute time frame. The Nasdaq ran into previous daily highs, while the Dow hit resistance at its 15-minute 200 simple moving average and the S&P 500 hit price resistance at Friday's highs. All of these corresponded to the 10:45 ET reversal period and the market reacted accordingly and pulled lower throughout the remainder of the morning.



The market pulled quickly into the 5-minute 20 sma support at about 11:15 ET. It then hugged that support level before breaking lower for a second wave of selling on the 5-minute time frame into noon. This second decline was a bit slower than the first with more overlap from bar to bar and on lighter volume. These were the perfect traits for a mid-day buy setup and the corresponding 12:00 ET reversal period and 15-minute 20 sma support didn't hurt matters either! Within half an hour the market was back at the previous highs, but it did take a bit longer for strong momentum to come in again.

The indices chopped around a bit for another correction into 13:30 ET and then at 14:00 ET they broke out to new intraday highs. The buying was steady into 14:30 ET before the market again slowed and began to show signs of correction. The correction took the market into the 5-minute 20 sma into 15:00 ET, but then retested highs before falling apart into 15:30 ET. This flush was brief, testing the 15-minute 20 sma, before it pulled back up into the close. The session ended within a few ticks of the day's highs, but the resistance left it selling off afterhours for the remainder of the evening.



My bias in the market remains on the upside as the week continues, but I'm still refraining from being too aggressive on swingtrades. I've been putting a lot more focus on intraday setups in recent weeks than on larger time frames where I'd hold for more than a day or two at a time. I'm still targeting the previous highs from July as resistance for the Nasdaq, but the rest of the market has a lot of moving average resistance that it's going to have to deal with first, and due to the stronger gap and drop on the 7th I'm not completely sold that the Nasdaq is going to make it!

Note: I will not be releasing a letter on Friday or Monday, but will resume the newsletter for Tuesday 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.