The market didn't get very far on Wednesday. After peaking Monday afternoon, the major indices have been in corrective mode. Tuesday's trading range broke lower as the weakness we were looking at in the Dow Jones Inv. Ave. followed through Wednesday morning, and all three of the major indices moved lower in premarket trading. This selling pressure continued throughout the first 30 minutes of the day. The stronger Nasdaq Composite found support in the zone of Tuesday's lows, but the Dow and the S&P 500 continued into price support from Monday's mid-morning congestion (shown below).

These morning support levels hit at the same time as the 10:00 ET ISM Services data. Even though the number was slightly weaker-than-expected, coming in at 54.8 instead of 55, it was still close to consensus. More importantly, however, was the fact that the employment component of the report jumped from 47.9 to 52.7. The market latched onto this number and immediately began to climb.

The momentum was the strongest on the initial reaction to the 10:00 ET data. After hitting the 5-minute 20 simple moving average resistance, that momentum began to slow. The indices attempted to push through the moving average at 10:30 ET, but they had not corrected enough to the resistance and fell back for about 15 minutes before continuing out of the 10:45 ET reversal period and moving to new intraday highs.



The second wave of buying in the market intraday was a great deal choppier than the first. After about 5-10 minutes the prices began to overlap quite a bit on the 5-minute time frame and even though the market continued to push higher, they were never able to sustain another decent move on the 5-minute time frame and began to have a more and more difficult time pushing to new intraday highs. The stronger Nasdaq closed its morning gap, but while the Dow and S&Ps came close, they were not quite able to make it. The 12:00 ET reversal period held and the market quickly began to turn over into the afternoon, giving way to a more orderly trend move in the opposite direction.

Unlike the previous uptrend intraday, the downtrend began rather gradually as the market rounded off at the highs. The indices pulled back steadily into earlier congestion, hitting support at about 12:30 ET. A very gradual upside move on significantly declining volume followed into 13:00 ET. The strong drop in volume despite the buying showed a genuine lack of interest on the side of the bulls, and when the 5-minute 20 simple moving average hit at the same time as the 13:00 ET reversal period the dam broke and sellers flooded the market.



The 13:00 ET move intraday was the strongest downside move of the session. It took the Dow back into the zone of its morning lows and brought the S&P 500 into support from the 10:45 ET lows. It took a third wave of selling, however, to bring both the Nasdaq and the S&P 500 back to their own morning lows and this took place heading into the 14:00 ET reversal period. The Dow broke to new lows with that same bout of selling.

The Nasdaq began to have a much more difficult time as the afternoon progressed. The waves of selling remained intense despite waning bearish action in the S&Ps. The Nasdaq was able to mount a fourth rapid flush to new lows at 14:45 ET while the S&Ps broke the lows by only a hair to create a 2B buy setup and the Dow held the earlier lows. Instead it favored a base under the 5-minute 20 sma resistance before breaking higher into 15:00 ET.

The fact that the Nasdaq was able to create that fourth move and break to such a large degree back into Monday's lows was a bit unusual, since action such as in the S&Ps is more common on such a trend. Nevertheless, while all three indices bounced into the last hour of trading, they only returned to their prior 5-minute highs before pulling back again and congesting into the close.



The Dow ($DJI) posted a loss on Wednesday of 79.26 points and closed at 13,968. Less then 2/3 of its components closed in the red, however, with Home Depot (HD) and General Motors Corp. (GM) among the blue chips which outperformed. The S&P 500 ($SPX) also fell as a whole with a loss of 7.04 points to end the session at 1539.59. The Nasdaq Composite ($COMPX), thanks to its late day reversal, lost 17.68 points and closed at 2729.43.

The market tends to move in waves of two and three. Right now the 60-minute charts have established two waves of buying and the correction over the past two days is now equal in terms of time development as the one from the 27th-28th. All three indices are at lower trend channel support, which hit mid-afternoon on Wednesday. The correction off the highs was stronger, however, than the last correction, which was more of a base compared to this correction, which is more of a price retracement. This is mainly a problem for the Dow since it leaves the prior highs in that index as strong price resistance intraday on any upside attempt.

Friday's jobs data has everyone's eye, but the market currently suggests that we still have room for one more test of highs before a larger daily correction. I admit, though, that I would have liked to have seen more of a volume decline on Wednesday to help support a lack of over-eager sellers. This, combined with the stronger price decline and prior daily highs, are the main cons the bulls have working against them. So this basically leaves me bullish, but with greater reservations that may easily have me changing my mind once the intraday data begins to play out.

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.