The market continued to lose ground on Thursday with Wednesday's breakdown continuing into the new session. Although the Dow Jones Industrial Average ($DJI), S&P 500 ($SPX), and Nasdaq Composite ($COMPX) all closed lower, the closing prices were a vast improvement given the day's lows made earlier in the afternoon. By the end of the day the Dow posted a 33.73 point loss (-0.2%). International Business Machs. (IBM) was one the main losers, down 4.5% by the end of the day, while American International Group, Inc. (AIG) continued to fall another 3.3% on the day.

The S&P 500 held up a hair better than the Dow, posting a loss of 0.85 point (-0.1%). The Nasdaq Composite, on the other hand, was extremely hard-hit. Led by declining technology shares, the Nasdaq posted a loss of 52.76 points (-1.9%) by the end of the day. Cisco (CSCO) alone fell 9.5% following earnings the evening before. GOOG, RIMM and AAPL all lost more than 5% of their market value on Thursday.



From a technical standpoint, the continued downside the market experienced on Thursday was expected based upon the activity of the last couple of weeks. It didn't stray much from what I had laid out as a scenario several weeks ago. It was still not a pretty picture though. The volume in the market was the highest it had been since we were at the comparable price development back in mid-August. This meant that it could have been a very difficult day for those not skilled in order execution since prices moved very quickly.



The market began the day by selling off. This extended the downside from the previous afternoon. A 15-minute bear flag then formed to mark the second major correction on this time frame intraday since Wednesday's reversal. The flag had two waves of upside, typical of a continuation pattern forming. Then at around 11:15 ET the indices broke lower. The selling was volatile, but steady. The S&Ps hit our target in the 1460 zone perfectly and the S&Ps also found support from the August congestion we have been watching. In both cases, as well as in the 15-minute Nasdaq and S&Ps, the mid-day move lower nearly equaled previous selling.

The downtrend channel broke just after 13:00 ET. Volatility remained highs as the market attempted to pull higher off early afternoon lows. The 5-minute 20 simple moving average served as resistance and at 14:00 ET the market pivoted and corrected somewhat while holding the 5-minute 20 sma resistance zone. Volume declined on this correction, indicating a greater bullish sentiment into the final hour of trading. The market began to rapidly move higher into the 15:00 ET correction period. The Nasdaq lagged, but the S&P 500 and Dow Jones Ind. Ave. both came closed to positing gains, but ended up holding the 30-minute 20 simple moving average resistance intraday instead.



Volume is likely to remain high on Friday. It is also probable that the indices will continue to correct off Thursday's lows. I have been watching for the potential for the market to set up a third wave of buying in the S&Ps and Dow to slightly higher highs. That is going to now depend upon how the market continues to react to the current support level. As long as the upside momentum is strong, the scenario will hold.

Price Headley is the founder and chief analyst of BigTrends.com.