Good morning! After Wednesday's strong late day selloff, the market was due for a larger intraday correction. I wrote about a few options as to how the market could correct in order to get more selling before the end of the week. Despite the strength of the selling, however, the market corrected much more rapidly than I had anticipated. The market moved higher right away out of the open, but there was again divergence between the NASDAQ Composite, which remained weaker, and the SP500 and Dow Jones Ind. Ave. After initial buying, the NASDAQ pulled back into 10:00 ET while the other two indices held highs and then broke then just after 10:00. The pace of the buying picked up strongly from there, taking the market back to the afternoon breakdown zone from the prior day, which was also equal move resistance on the 5 minute Dow charts if you compare the rally into Wednesday's close and then 9:45 ET highs as compared to the 10:00 continuation breakout.

The market reacted quickly as it came into the strong resistance on the 15 minute charts. After pivoting, the indices formed a small 2 minute Avalanche pattern by hugging the 2 minute 20 sma before breaking lower to continue the correction off highs. The pace picked up and took the market back to the first 5 minute highs of the day just after 11:30 ET. This hit at the 15 minute 20 sma in the NASDAQ and 200 sma in the Dow. At that point the volume dropped off as the market formed a 5 minute Bear Flag before continuing to sell off into 12:30 ET as the Dow and SP500 dropped into Wednesday's close and strong price support once more.

With the strong back and forth action on the 15 minute charts, we were seeing a triangle form on the larger intraday time frames. This meant that another upside move into the afternoon was becoming likely. We saw the market try to create one last 5 minute Bear Flag in the early afternoon, but the pace off the 12:30 ET lows was picking up when it ran into the 5 minute 20 sma. This made for more choppy action and higher risk trading. It wasn't until the market put in a slightly lower low on the SP500 and Dow Jones Ind. Ave. that the 2B pattern that slightly lower low created helped to turn the market back over. The market popped quickly back to the 15 minute 20 sma where it stalled for just a few minutes before triggering a strong continuation pattern on the 5 minute charts and rallying into the close.

The market is holding up pretty well going into the last trading day of the week. After the strong selling heading into the week, it initially looked as though we'd see more significant downside, but instead the NASDAQ formed rounded lows while the SP500 and Dow both pivoted well off Monday's late day support. This leaves things pretty much up in the air on Friday since the market doesn't have a strong intraday or daily directional bias at this time. It just looks like we will continue to see the range from the last couple of weeks hold.

Updates: VAR from the 20th $38 around hit new highs the 27th at $40.70 before closing on the day with a base at highs ahead of earnings for swingtraders. For a larger position trade I want the 20 day sma to hold. I am watching HSP for a breakout on the daily and weekly charts, but it can easily take a few weeks to even a few months to develop with the 20 week and 20 month simple moving averages serving as support. QLGC is on my watch list as a longer term short on a break down out of the current weekly low-level base.

Economic Reports and Events
Aug. 12: Export Prices ex-ag. For Jul. (8:30 am), Import Prices ex-oil for Jul. (8:30 am), Trade Balance for Jun (8:30 am), Mich Sentiment-Prel. For Aug. (9:45 am)
Aug. 15: NY Empire State Index for Aug. (8:30 am)
Aug. 16: Building Permits for Jul. (8:30 am), Core CPI for Jul. (8:30 am), CPI for Jul. (8:30 am), Housing Starts for Jul. (8:30 am), Capacity Utilization for Jul. (9:15 am), Industrial Production for Jul. (9:15 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Aug. 12: ALTI (?), ERJ (A), MOVI (B), PBR (?)
Aug. 15: A (B), MIVA (B), GG (A), KEP (B), LOW (?), PLAB (?); SYY (B)
Aug. 16: ANF (A), AEOS (B), AMAT (4:30 pm ET), BJ (B), DE (B), HPQ (?), HD (B), JCP (B), JWN (?), SPLS (?), EL (B), TJX (B), WMT (B)

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.