I have this cat named Bonnie, but from the time she was a kitten she earned the nickname "Boo", which she now thinks is her actual name. She received this name because she is afraid of everything! Everything, that is, except what cats are supposed to be scared of! Vacuum cleaners, water, hyper-active 3 year olds don't faze her, but if she sees a nail file she will freak out. The same thing happens if a gust of wind fluffs her fur the wrong way or a book is laying on the counter that wasn't there before. She will jump halfway to the ceiling from standing position, which is quite a feat given our high ceilings. Lately, the market reminds me exactly of my cat. It has brushed aside poor news or lack-luster news, but if you so much as look at it the wrong way it freaks out. This happened last Thursday when late-day panic left many scrambling to find the news, when there was none to be had. The same thing happened again in Wednesday's session.



The session began on a happy note, following through in the afterhours trading on the bullish bias we saw heading into the close on Tuesday. Unfortunately, the gap into the open was much larger than average, and hence more difficult to hold. Typically the extreme gaps in the indices themselves have a greater tendency to fill. It did not help that the gap was also into strong price resistance. This came at Monday's opening levels in the Nasdaq Composite ($COMPX) and the closing highs from Monday in the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI).

Right away out of the open the bears took over. The momentum on the downside was pretty decent initially, slowing as the 5-minute 20 simple moving average approached in the Dow. An area of congestion followed and then led to a second wave of intraday selling into the 10:45 ET reversal period. This corresponded to the 5-minute 20 sma in the Nasdaq and the market began to correct again off support. The Nasdaq held, but the Dow and S&Ps established a slightly lower low just after 11:00 ET before they joined the Nasdaq in correcting off the support zone. The slightly lower lows brought them into stronger support due to the 15-minute 20 sma.



The indices slowly climbed into noon, but volume sharply declined, indicating a lack of conviction on the upside move. When the 12:00 ET reversal period hit, the volume was at its lightest levels of the entire session. At the same time, the market was hitting strong price resistance from previous congestion on the 5-minute charts in the S&Ps to the previous highs in the Nasdaq. The result was a very rapid return of the bears once the lower end of the trend channel gave way. The volume had been so light just prior to the breakdown that it took very little for the market to create its strongest momentum move of the session thus far.

Within half an hour the S&P 500 had closed its morning gap, the Nasdaq had fallen into its 15-minute 20 sma, and the Dow was hitting the previous afternoon's lows. All of these support levels led to a minor correction, but the market just hugged the support on light volume again and when the 13:00 ET reversal period hit the market rapidly plummeted to new intraday lows.

The second strong wave of selling in the afternoon finally took the Nasdaq back into its closing prices from Tuesday. This was another strong level of support, much as it had been on the S&Ps and Dow. As in the S&P and Dow, however, the momentum into the support was extreme, which meant that any rapid correction off the support level was unlikely. Since we only had two waves of selling, it also meant that the market still had room for a third wave of downside. Volume did spike coming off the second low, but it dropped again as it corrected. When the upper end of the downtrend channel hit, it kicked off that third decline, taking the Nasdaq back into Tuesday's lows and yet another very strong 15-minute support zone.



At 14:00 ET the Fed's Beige Book came out. 14:00 ET is typically a reversal period to begin with, but combined with the strong market support and the trend exhaustion, it came at a very pivotal time for the market. The indices popped and then based into about 14:30 ET. Volume was light on the more gradual pullback off the 5-minute 20 sma zone. The momentum again increased as the resistance gave way and when the 15:00 ET reversal period hit the market took off. Within only about 15 minutes the indices were back to their 13:00 ET breakdown prices. This served as resistance, but a small correction was all it took before the market again shot higher into the close.

The market closed with a 20.40 point loss (-0.1%) in the Dow Jones Ind., a gain of 2.71 points (+0.2%) in the S&P 500, and a gain of 28.76 (+1.0%) in the Nasdaq Comp. The buying then continued afterhours and the S&Ps and Dow flew into their 12:00 ET price resistance, while the Nasdaq continued into its premarket highs before stalling and falling into a congestion heading into the next day.

It is still going to be easier for the Nasdaq, which has held up very well thanks to technology stocks lately, to break to new daily highs. Meanwhile the S&Ps and Dow have more significant resistance at last week's highs. Due to earnings season and a great deal of uncertainty in the markets, moves such as Monday's and Wednesday's are likely to occur on a much more frequent basis right now than we have seen in the last 6 weeks. I am also now suspecting that by the time earnings season begins to wind down we will once again be experiencing another larger correction on the weekly time frame in the overall market.

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.