Good day! For only the second time since last August, the market is finally showing corrective action on the daily time frame that is spilling over onto the weekly charts. Tuesday's session was particularly difficult for the major indices. Even though the index futures were higher in the early-morning hours, a larger correction was already well under development in the form of a Momentum ReversalTM on the 30 minute charts.
The Momentum ReversalTM pattern was the strongest in the Nasdaq futures (NQ). strong move higher on the 24th and 25th was followed by a series of three evenly spaced highs (Figure 3), whereby each high was slightly higher than the last. This shifted the momentum of the uptrend, making is susceptible to a larger breakdown. A variation of this reversal strategy is also evident in the S&P 500 futures (ES) in Figure 2.
Dow Jones Industrial Average (Figure 1)
The first trigger for the Momentum ReversalTM took place around 4:00 a.m. ET, but the confirmation came at Tuesday's opening bell. The index futures had already started to sell off by that point and were congesting at initial support levels from the lower end of the premarket uptrend channel. Within this correction were two counter-moves on the 5 minute time frame. This action is ideal for a continuation pattern. The larger Momentum ReversalTM confirmed as soon as this 5 minute correction off support between 7:30 a.m. and 9:30 a.m. ET broke lower.
This on Tuesday is in line with my expectations for a longer daily correction off last month's highs, but instead of a trading range, it open the door for further price correction as well. The 50 day moving average is the next major daily support for the Dow, which had been leading the rally in recent weeks.
S&P 500 (Figure 2)
Once the selling hit on Tuesday, the market never looked back. The indices began the session at the intraday highs and ended it at the intraday lows. The day's economic data didn't leave much of an impact. The Institute for Supply Management's manufacturing index rose for the 19th month straight and hit 61.4%. This is its highest level since May 2004. A reading over 50% indicates expansion. February's auto sales, posted in the afternoon, were also strong.