Market Plunges Off Late-Night Highs Into Tuesday Morning

Good day! The markets were hit with a fierce wave of selling heading into Tuesday. We had seen weaker action on Monday morning than I had desired in order to get a decent bounce on a 30 minute chart and this left the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) in a trading range on that time frame. Heading into Tuesday, they awaited a shift of momentum within that trading range to indicate a breakout direction.

Dow Jones Industrial Average



While the typical resolution of the price action we saw going into Monday's close was bearish, the index futures didn't offer confirmation until the late evening hours on Monday. The market had pivoted off afternoon highs with the 15:00 ET correction period that day. The index futures then hit and held support around 16:40 ET following the close. This drop of nearly two hours was followed by a retracement higher afterhours that continued into 21:00 ET. Despite lasting more than twice as long as the descent, the S&P 500 futures still did not manage to reclaim the afternoon highs. This gave us the change in momentum that I wrote about yesterday that was desired to offer a stronger directional bias for the trading range break.

The index futures began a steady decline out of the range coming out of the 21:00 ET highs on Monday and broke the lower end of the 30-minute trading channel between 23:00 and midnight. This selloff continued into 4:30 a.m. ET on the 5 minute time frame. At that point another correction off lows began. This time the correction was not a more gradual uptrend, but a trading range. A second low into 7:30 a.m. ET within the range tested the previous low from the 4:30 a.m. level almost exactly. The reaction off this second low was slower than off the first one and substantially slower than the drop off the highs of the range from between 7 to 7:30 a.m. This resulted in a smaller short setup in the indices that was similar to the one that took place on the 30 minute charts heading into the late evening.

S&P 500



Once the lows of the range broke, the momentum of the selloff increased dramatically. The day's economic data did nothing to lend support to the markets. Concerns overseas were carried over into the U.S. marketplace after China reported that its leading economic indicators for April were adjusted to show a mere 0.3% increase compared to the initial report of a 1.7% increase. In Europe, the European Central Bank decided against extending liquidity measures to banks. Then, the U.S. was also hit with some disappointing news. The Consumer Confidence Index for June dropped from 62.7 in May to 52.9 in June, sharply missing the 62.0 analysts were anticipating. A rapid continuation of the morning selloff immediately followed.

The market finally found support at approximately 10:30 a.m. ET. Due to the pace and extent of the selling, it was unlikely that the market would manage much of a recovery throughout the remainder of the session. Instead, the indices switched to favor 5 minute pivots and more scalpish moves, primarily on the downside. The first trigger following the 10:30 low took place out of the 11:15 ET correction period. The indices were testing 5 minute 20 sma levels on lighter upside volume. This led to another 5 minute low into noon, followed by congestion and another low into 13:30 ET. This series of back and forth action continued into the closing bell. The final 90 minutes of trade did see some strong breakdowns in individual stocks that congested mid-day to trigger some nice 15 minute setups on the downside, but buy strategies offering more than 30 minutes of follow through were scarce.

Nasdaq Composite



The Dow Jones Industrial Average ($DJI) ended the session on Tuesday at 9,870.30 with a loss of 268.22 points, or 2.65%. All 30 of the Dow's index components posted a loss. The biggest losers, each falling more than 4%, were Boeing (BA) (-6.33%), Alcoa (AA) (-6.27%), Caterpillar (CAT) (-5.53%), American Express (AXP) (-4.82%), Bank of America (BAC) (-4.41%), and Microsoft (MSFT) (-4.11%).

The S&P 500 ($SPX) fell 33.33 points, or 3.10%, and closed at 1,041.24. Although all 10 of the S&P 500's industry groups closed in negative territory, the strongest losses were felt in the industrials (-3.9%) and financials (-3.9%). One of the weakest sectors, however, was the semiconductors. The Philadelphia Semiconductor Index fell 4.6%. Zimmer Holdings (ZMH) (+0.06%) was the only gainer in the S&P 500. The biggest losers were Micron Technology Inc. (MU) (-13.47%), Cliffs Natural Resources Inc. (CLF) (-10.99%), Textron (TXT) (-9.97%), AK Steel Holding (AKS) (-9.38%), SLM Corp. (SLM) (-9.08%), and Titanium Metals (TIE) (-9.04%).

The Nasdaq Composite ($COMPX) ended the session lower by 85.47 points, or 3.85%, and it closed at 2,135.18 on Tuesday. The Nasdaq-100 also only saw one gainer on the day. Teva Pharmaceuticals (TEVA) rose 1.33%. Flextronics Intl. (FLEX) was the biggest loser, falling 10.53%. It was followed by losses of 9.23% in Baidu (BIDU), 7.80% in Amazon (AMZN), and 7.7% in Wynn Resorts (WYNN).

Although the indices were left on the extended side heading into Tuesday's closing bell, risk remains higher on buy strategies, even on a 15 minute time frame. It will be very easy for the indices to push to lower lows on the all-sessions time frames mid-week. I am continuing to favor intraday strategies over those forming on the daily charts.

Note: Unless otherwise stated, the index action described in this article relates to the E-mini futures contracts for the respective indices. Actual index action may differ slightly in terms of pattern formation, although the market bias will remain the same.

Toni Hansen is president and co-founder of the Bastiat Group, Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.

About the Author
Toni Hansen

Toni Hansen is president and co-founder of the Bastiat Group, Inc., DBA Trading From Main Street. Toni is one of the most respected technical analysts and traders in the industry. She has been trading and educating new traders, money managers, professional market analysts and traders throughout the boom and bust of the last decade. She has worked in conjunction with some of the world's top financial exchanges. Learn more about Toni Hansen and the educational services she provides through her website at http://www.tonihansen.com.

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