Tuesday was a very busy day for the market. The indices gapped higher into the open after turning around at 3:00 am ET and then gaining upside momentum at 8:00 am ET. The Labor Department reported that wholesale prices fell 1.4% in August. Falling food and energy prices played a significant role. The core producer price index, however climbed 0.2%, which was more than anticipated. It was read as good news by the market since it represented a nice curb on inflation.

The morning gap was pretty impressive in and of itself. The session began at strong prices resistance, however, from the previous 2-3 days of trading where the market had been stuck in a range. The result was an attempt to close that gap shortly after the open. The indices rounded off at premarket highs and began to fall rather quickly following the bell. The Nasdaq's gap zone closed nicely, while all three indices found support at the 5-minute 20 period simple moving averages.



After the first 25 minutes or so of the day there really was not much of a bearish bias at all in the market. The indices were on the more sloppy side, but they trended higher into the 11:15 ET reversal period. This closed the gap zone from Friday's close in the Nasdaq and brought the S&P 500 back into the resistance level from Thursday's highs. The strong overhead prices and impending Fed rate announcement put a halt to the upside for awhile. Volume diminished dramatically and the indices slowly pulled lower head of the announcement. There were some stronger moments of selling than buying on the pullback, but the larger momentum of the correction itself remained more gradual than the earlier buying.



When the news hit at about 2:15 ET that the FOMC not only cut its overnight interest rate, but that it did so by half a percentage point, the market was stunned. The bulls were tripping over themselves to initiate new positions and the indices soared. A continuation pattern quickly followed after a brief stall at highs into 14:30 ET. The S&Ps did not perform quite as well as the Dow and Nasdaq, but they still climbed back into the intraday highs.

Even after already establishing one of the largest intraday upside moves in the past 5 years, the indices still did not let the sellers gain any edge. A second correction off the highs pulled the market slightly lower into 15:00 ET, but the volume declined as the market pulled back. This meant that true sellers were not driving the correction, but rather that the buyers had just eased off for a bit. They took the helm for a third time soon after 15:00 ET. This time the Nasdaq was left behind while the S&Ps and Dow experienced the strongest pushes to new highs.

By the end of the day the Dow Jones Industrial Average ($DJI) rose 335.97 points (+2.5%) to close at 13, 739.4. The S&P 500 ($SPX) gained 43.13 points (+2.9%) and closed at 1,519.78. The Nasdaq Composite ($COMPX) added 70 points (+2.7%). It closed at 2,651.66. Broker/dealers and many others in the financial sector were among the top gainers on the day. They were led by Lehman Brothers (LEH) and Goldman Sachs (GS).



The move which resulted from Tuesday's economic data and news triggered a breakout on the daily time frame as well. This comes from a rough cup-with-handle pattern that began at the start of the month. It will once again be easier for the Nasdaq to retest July's highs and now the S&Ps and Dow have a decent shot as well. Expect that the buying would stall just a hair under the exact highs since there is some congestion in that zone. Intraday corrections on the 15 minute time frame are worth keeping an eye on. I am concerned that since the breakout momentum was so strong, that the buying which follows will be much slower overall as the excitement dies down a bit.

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.