The afterhours climb following Tuesday's closing bell continued into the opening bell on Wednesday. When it rang, the Dow was already back at the price resistance from Tuesday's highs and the S&Ps were also dealing with the same resistance zone. The ES (S&P 500 EMini) chopped around in the 1542.5 level we were looking at for the first 45 minutes or do of the day. Volume was on the light side and continued to decline into the 14:15 Fed announcement. The lighter volume as the market corrected from the morning gap in the first 45 minutes or so, however, created a continued bias for more upside throughout the morning.

The indices rose steadily into 12:30 ET with only a 5-minute congestion zone at highs stalling the move from about 10:45 ET to 11:30 ET. It held the 5-minute 20 simple moving average throughout the ascent and found resistance eventually at the zone of prior highs in the Dow and S&Ps. A couple of stocks really did their best to outshine the overall market during this time. Newmont Mining Corp. (NEM) was a great example. It had tested a third high earlier in the week on the daily time frame and then formed a bear trap on the daily chart into Wednesday morning after it doubled its third quarter earnings. The result of the break from the range and the trapped bulls was an extreme continuation move out of the open that lasted into about 10:45 ET. Mastercard Inc. (MA) also took off on earnings, but it fell into a range out of the open and then broke higher around 11:00 ET. FXI, SIMO, SIRF, IVGN and ICON also took off strongly higher intraday in morning trading.



At 12:30 ET the market began to experience a greater divergence between the indices. The Dow formed a strong bull flag pattern into 13:00 ET and then broke higher into the Fed. The Nasdaq Composite, on the other hand, pulled more quickly lower into 13:00 ET and then based under the 5-minute 20 sma on light volume before breaking lower ahead of the Fed. The S&Ps fell in between the two and attempted, but did not quite hit, a retest of the intraday highs. It also broke lower prior to the lending rates announcement. The Dow never shook off its own 5-minute 20 sma and gave way to the pressure when the 14:15 news hit.



I'd been expecting the initial reaction to the Fed news, no matter what it was, to be on the downside and was not immediately disappointed in that bias, except for the fact that the market as a whole actually began to break lower before the news even hit that the Fed had lowered rates by the anticipated 1/4 point. The market fell as an initial reaction and then swung higher before selling off again. These three smaller waves became the first part of three larger ones.

At 14:30 ET the market began to reverse. This kicked off the second move on the 5-minute time frame. This counter-reaction to the initial news was much more pronounced than the initial move. As I mentioned yesterday, this is not at all unusual. The upside in the Nasdaq ended up being about twice that of the first downside move. The result was that when the market went for its third move it did not fall as hard. Instead the 5-minute 20 sma zone served as support. Even though the indices shown here all moved higher off the support, the market still held the 15:00 ET zone highs.



By the end of the session on Thursday, the Dow ($DJI) had added 137.54 points and closed at 13,930.0. The S&P 500 (SPX) rose 18.36 points and closed at 1,549.38. The Nasdaq Composite ($COMPX) gained 42.41 points. It closed at 2,859.12, giving it the largest monthly gain among the three indices. It had risen 5.5% at the end of trading on Wednesday. As news continues to pour out in the form of earnings, my focus is going to remain on the premarket gainers and losers lists. There have been a lot of really nice gap plays this week and it seems reasonable to expect this to continue until earnings season begin to taper off.

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.