E-mini stock indexes look weak heading into Q4

At the same time, the latest data for construction spending in the U.S. rose unexpectedly in August after falling in July. It was up 1.4% to hit an annual rate of $799.15 billion, but most of those gains were in public construction on the state and local level. Federal construction spending fell 0.5%, while private construction spending was up only 0.4%.

Nasdaq Composite (Figure 3)

Getting Technical

It tends to take the market about 15 minutes to digest data coming out at 10:00 a.m. ET. This leaves 10:15 a.m. ET as one of the morning's strongest correction periods. Morning highs or lows often take place at this point on 5-15 minute charts. On Monday it marked a high that ended up holding throughout the remainder of the session. At first, however, the indices did try to hold onto those gains and tried to keep from breaking morning lows. The market corrected gradually off the 10:15 highs and held support at the morning lows going into the 11:00 ET correction period.

The pace of the selling off the 10:15 high was slower than the rally into it, taking about three times as long. This suggested another reversal to the upside into noon, but the pace of the buying shifted the second time around and volume dropped as the market made an attempt at the prior highs. The pace also slowed on the upside between 11:00 and 12:00 ET. By the time the 12:00 ET correction period had hit, the market had taken four times as long as the 10:00-10:15 rally and not even tagged the earlier highs. This made it easy for the sellers to return with confidence in the afternoon (or rather for the bulls to give up theirs).

The pace of the afternoon selloff was steady without taking a break to even test 5 minute 20 sma resistance between 12:00-14:00 ET. This limited opportunities for lower risk continuation strategies once the trend was underway for daytraders and the final two hours were also more difficult due to strong overlap within the trading channel on the 15 minute time frame into the closing bell. It was the fourth day that the market has held the resistance zone of the 15 minute 20 sma. This rarely happens past day three, although in this case there were some minor breaks in that resistance. Nevertheless, we should see this trend channel break as we head into mid-week to offer a bit of a reprieve from the selling pressure. Due to the mounting momentum of the selloff though, another flush to the downside is still possible on Tuesday and the upside pace of recovery moves will be more gradual than Monday's decline.

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.

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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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