Good day! The market had its strongest session in two and a half weeks on Monday as the indexes continued to correct from the sharp selloff that began with the news of a revolt in Egypt last month and escalated following Japan's 9.0 earthquake on Feb. 11.
The indexes hit and held strong support last week. The S&P 500 and Dow Jones Industrial Average each held its 100-day simple moving average. Since then we've seen a steady recovery take place. The swings on the 15-minute charts have not been as pronounced as on the decline, however, and a lot of the upside has occurred outside regular market hours following the market recoveries overseas. This has made it a trickier environment for day traders in the U.S. markets since the intraday action over the past three trading days, and particularly on Friday and Monday, were quite compact and choppy. All of the upside has taken place within each session during the first 30-60 minutes of the day.
Dow Jones Industrial Average
As we head into Tuesday morning we are once again seeing premarket action up off afterhours lows. The pullback from Monday morning highs continued after the closing bell with steady, but gradual selling into midnight. By this point the 15 minute trend was already extended on the upside with the indices hitting resistance on the daily time frame from the previous congestion zone in the Dow and S&P 500, as well as the 20 day moving averages. The rally also had three distinct highs within the move off last week's lows. This meant that once the index futures pulled back to the lower end of that uptrend channel into midnight last night, they had a much more difficult time reacting to it and the bounce was less pronounced than earlier premarket moves.
The Dow futures were the strongest premarket performers due to a weaker pullback afterhours on Monday. This allowed it to retest Monday's highs in premarket trade early on Tuesday morning. Slightly higher highs created a trap I call a "2T". This is a sign of a weakening trend. The push into the second high was still on strong momentum, so the reversal off it was not a sharp one to begin with, but we should see the market trying to catch its breath as we head into mid-week as it reacts to the intermediate daily resistance. On the larger time frames, a correction on the 30-60 minute charts is still going to favor the bulls based upon current price action, so use caution on shorts other than day trades or positions that are not tied heavily to the overall market bias.