Volume remained heavy on Thursday following Wednesday's quarter point interest rate cut. It wasn't a very promising day for the bulls however. The indices opened significantly lower after rolling over around midnight and increasing momentum on the downside in premarket trading. The ES, which is the S&P 500 EMini futures contract, gapped down by 15.75 points, leading to initial trading intraday at what had been the lows of the week up until that point. The Nasdaq held up a little better and opened into the highs from mid-day Tuesday and the pre-Fed levels on Wednesday, but the selling resumed immediately out of the gate.



After a bit of congestion at lows between 9:45 and 10:00 ET, the indices found support on a third low on the all sessions charts, which include premarket data. This hit at the same time as the 10:15 ET reversal period and price support from prior lows in the Nasdaq Composite on the 15-minute time frame. The Nasdaq moved quickly higher, but the momentum was still more gradual on the upside in the S&P 500 and Dow Jones Industrial Average. The 5-minute 20 sma served as resistance and hit between the 10:45 ET reversal period in the S&Ps and Nasdaq and the 11:00 ET one in the Dow.

Even though the rally itself was pretty decent, the market had a very hard time breaking the resistance, which was also a 38% Fibonacci retracement level from the afterhours highs to the morning lows. The market fell into a solid trading range throughout the rest of the morning and well into the early afternoon. There were quite a few nice pivots during this time, but overall the upside momentum began to slow. This was the most noticeable in the Dow. The third wave of upside within its mid-day congestion couldn't even break free from the lower trend line made when connecting the first two lows. The light volume throughout confirmed a lack of motivated buyers and the market began to break down around 13:30 ET.



The 13:30 ET breakdown in the indices led to new intraday lows in the Dow and a retest of the morning lows on both the Nasdaq Composite and the S&P 500. They hit at the 14:00 ET reversal zone and a correction off the support followed. Once again the volume declined somewhat, although it remained higher than in recent days. The breakdown level from earlier, combined with the 15-minute 20 sma, served as very strong resistance and an even sharper momentum selloff plunged the indices to new intraday lows into the final hour of trading. A minor correction at 15:30 ET broke 15 minutes before the closing bell and took the Nasdaq past Wednesday's lows.



All three of the major indices closed right at the level of the day's lows. The Dow ($DJI) lost a staggering 362.14 points to end the day at 13,567. Citigroup (C) was one of the worst performers, losing 6.9%, while the index as a whole lost 2.6%. AIG (AIG) came close to Citigroup by shedding 6.1% and JP Morgan Chase (JPM) lost 5.7%. It was not a good day for financial-related securities. The S&P 500 ($SPX) also fell 2.6%, which translates as 40.94 points. It closed at 1,506. The Nasdaq Composite held up a little better. It lost 2.2% (64.29 points) and closed at 2,794.

One of the largest decliners on Thursday was the recent daytrader darling Crocs (CROX). After reporting earnings of 66 cents a share, the stock plummeted due to warnings of potentially slowing growth as it begins selling new products at The Foot Locker. One also has to wonder just how many pairs of these atrociously ugly sets of footwear the average person needs to own in the first place. Given that nearly everyone I know (except myself) has at least one pair, it would seem logical that sales would slow, but hey, sometimes stocks like this defy logic for extended periods of time! (My apologies to offending the 99% of you who read this who own a pair! hehe!)

As we examine the broader market heading into Friday, I am in favor of some continued weakness. Thursday's selling was the action I had hoped to see following the Fed announcement on Wednesday, but it was close enough. The zone of the 20-day simple moving average resistance held in the S&P 500 and Dow and this could be the start of that second wave of selling on the daily time frame that we've been expecting. This means that the larger play for a third high on the weekly time frame for the S&Ps and Dow over the next month or two is still a very plausible scenario, but we still have to see how this selloff and subsequent reaction turn out. The congestion from throughout August and the first week of September in those two indices is strong price support to watch for over the next week or so.

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.