The market gapped strongly higher on Monday morning, bolstered somewhat from news out of the Fed that the Bush administration would seek to buy stock in both Fannie Mae (FNM) and Freddie Mac (FRE). On Sunday the Federal Reserve also voted to allow the companies to borrow from the central bank. These two companies hold control over nearly half of the mortgages in the United States. They had lost more than 45% of their share value last week, although they recovered part of their losses from an extreme gap lower on Friday. They reiterated earlier statements that they each have enough capital and liquidity to withstand the housing crisis, but concerns across the board for the housing and related financial markets as a whole remain widespread.

IndyMac (IMB), which focuses on deposits and originating home mortgages, was the latest to fall victim to the pressure of the current lending meltdown. Federal regulators seized the savings bank late Friday, earning it the distinction of the second-largest bank failure in U.S. history. The seizure of IndyMac is estimated to cost the FDIC between $4-8 billion. Unfortunately for many, the FDIC only insures deposits of up to $100k per depositor per bank with retirement accounts insured up to $250k.

A number of other financial institutions came under heavy pressure on Monday in the wake of the current financial selloff. Washington Mutual (WM) was particularly hard-hit, falling 34.8% to close at $3.23. Just one year ago the company was trading in its $40s. Zions Bancorporation (ZION), which was trading around $75/share last summer, closed at $19.73 on Monday, down 23%. National City Corp. (NCC) slipped another 14.7% to close at $3.77. It had been trading around $33/share last July. Both Washington Mutual and National City released statements aimed at reassuring investors of it solvency. From the look of the charts, however, I'd say they need to do a little bit more convincing.

Dow Jones Industrial Average ($DJI)


Needless-to-say, the market was once again unable to hold onto its short-term gains. The indices held the opening highs and immediately began to pull lower. By about 10:00 ET the morning gap zone had closed in the S&P 500 ($DJI), Dow Jones Industrial Average ($DJI), and Nasdaq Composite ($COMPX). That gap closure served as initial support. Although the indices began to bounce quickly off that zone, the correction lasted for only 15 minutes before turning lower once again out of the 10:15 ET correction period.

At the 10:15 ET correction period the indices made another attempt to recover from the earlier losses. Although three lows had been established on the smaller time frames and the market broke its immediate downtrend line, the indices failed to conquer the previous 5 minute high. The 5-minute 20-period simple moving average held as resistance and another move back into the day's lows followed.

S&P 500 ($SPX)


On a 15-minute time frame the indices were entrenched in a larger descending triangle heading into noon. A base along the morning lows from approximately 11:15 ET onward broke lower into noon. This triggered the pattern on the 15-minute time frame and allowed the indices free pass into the prior afternoon's lows. The S&P 500 felt the greatest pressure and quickly returned to Friday's lows. Both the Dow and Nasdaq, however, nearly accomplished the same feat. They stalled shy of a complete retracement by hitting the 14:30 ET lows from Friday at the same time as the S&Ps hit their prior trading day's lows. A two-wave pattern along this support endeavored to bring the Dow and Nasdaq lower, but it failed to confirm the 13:00 ET attempt. Instead, upon pulling back into the 5-minute 20 sma at 13:30 ET, the indices hugged that resistance, making it easy for them to break higher soon thereafter.

The market moved uncertainly into the 15-minute 20 sma. Instead of pulling back to hug this second resistance, however, the indices made several ventures to push higher. This created a series of traps with the third high holding into 14:30 ET to form a reversal pattern that quickly resulted in a retest of the zone from the mid-day lows. Undeterred, a final rally pushed the market back into the morning's congestion and the 5-minute 20-period simple moving averages before falling back yet again in the final 30 minutes of trade.

Nasdaq Composite ($COMPX)


The Dow Jones Industrial Average ($DJI) was up 138 points early into the open, fell nearly 100 points into negative territory by mid-day, and finally settled down 45.25 (-0.4%). It closed at 11,055.19. 19 of the Dow's 30 index components lost ground. Bank of America (BAC) fronted the losses, closing lower by 7%. Citigroup Inc. (C) fell 6%. American Express (AXP) lost 4.4%. Compared to these losses in the financial sector, the Dow's leaders were underwhelming. Coca-Cola (KO) rose 1.4%, while McDonald's Corp. (MCD) climbed 1.3%.

The S&P 500 ($SPX) dropped 11.19 points, or 0.9%, on Monday. It closed at 1,228.3. The financial sector lost 4.7%. Utilities also fell, down 1.2%. Oil services and gold were both strong. The PHLX Oil Service Sector Index rose 2.11%, while the Amex Gold BUGS Index rose 3.31%. Crude futures for August delivery closed at $145.18 a barrel, up $0.10. Gold futures closed at $973.70 an ounce, up $13.10.

The Nasdaq Composite ($COMPX) lost 26.21 points, or 1.2%, on Monday. It closed at 2,212.87. On Saturday Yahoo Inc. (YHOO) rejected another bid by Microsoft Corp. (MSFT) and investor Carl Icahn. Shares of Yahoo fell 4.2%, while Microsoft slipped 0.4%.

With the latest intraday breakdown, we have yet to see any confirmation form on the heels of strong attempts to push the market higher into a larger correction off lows. As I mentioned in this weekend's column, the market's inability to follow each of the strong pushes higher with a more gradual pullback increases the risk of yet another strong breakdown on the daily time frame. Should this occur, it would easily take the Nasdaq back into the March lows. Action on a daily time frame at the moment is highly indecisive. Congestion with only slight upside on Tuesday, however, would increase the odds of such a breakdown. If we see lower lows early on Tuesday, on the other hand, then the market can once again pop quickly to the upside on a 50-minute time frame.

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.