Good morning! The indices had a pretty ugly day on Wednesday. The NASDAQ Comp. saw the most relative strength out of the open, gapping up slightly and then pulling higher into the prior 15:00 ET level from Tuesday afternoon while the SP500 and Dow Jones Ind. Ave. both struggled with their 5 minute 20 simple moving average resistance levels. All this did, however, was allow it to fall into a longer trading range while the other two had more room to climb.

Overall the entire market had a tough time making progress intraday. There was a great deal of overlap from bar to bar on the 5 and 15 minute charts, assisted by a rapid flush when the 10:30 ET oil numbers came out. This dropped the market back to lows, but it quickly rebounded. The Dow took over at that point as the relative strength leader until all three based into the 5 minute 20 sma and then broke higher at the 12:00 ET reversal period. Recently we have seen this mid-day reversal period hold a lot more than is typical, creating a greater number of strong lunch time moves.

The breakout at 12:00 ET brought the NASDAQ and SP500 into the prior afternoon highs where they had broken down from that mid-day base. The stronger Dow made it all the way to the 15 minute 200 sma intraday. In all three this was about an equal move on the 15 minute charts, shown in blue. The market tried again to break higher into the early afternoon, but while I was looking for a comparable base on the 15 minute charts as the prior one, it broke early, creating higher odds of failure. The strong 15 minute resistance also made it difficult to sustain another rally without more time to correct from the resistance and we saw the formation of a 2T on the 5 minute SP500 and Dow charts. This is simply a form of double top where the second high is just slightly more than the first. It traps those buying new highs.

The 2T helped to change the pace of the market and my bias as well. The next pattern to form was a small 1-2 minute Avalanche out of 14:00 ET. This took the indices into their 15 minute 20 sma support. At that point I felt we would again have higher risk into the close since the patterns up to that point had been very choppy. Even though some of the selling on the 1-2 minute charts was stronger than the buying in the afternoon, the overall correction from highs was still more gradual than the morning rally. Like we saw on Monday afternoon, this made range bound action more probable since volume was also on the lighter side during the selling.

The rest of August is likely to remain slower. For one thing, this is prime vacation season. That helps to decrease volume. We are also just seeing a correction to the prior highs in the NASDAQ that we had looked at a few weeks ago. So, this is a typical form of correction to a strong upside move. This is to the action we saw Monday and Wednesday afternoon after those stronger upside moves on the 15 minute charts. The market bias remains the same as we head into the end of the week with downside and a lot of overlap being likely. The NASDAQ does have potential for a 30 minute Cup with Handle in the morning, however, if the SP500 and Dow can pull up as well.

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 $39 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. For swingtrades, INFY broke down on Monday and hit initial support at the 100 day moving average zone. The 50 day sma will serve as resistance.

Economic Reports and Events
Aug. 18: Initial Claims 08/13 (8:30 am), Leading Indicators for Jul. (10:00 am), Philadelphia Fed for Aug. (12:00 pm)
Aug. 19: -
Aug. 22: -
Aug. 23: Existing Home Sales for Jul. (10:00 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. 18: ARO (4:01 pm ET), ADSK (?), BKS (B), BEBE (?), DITC (?), FL (A), GME (B), GPS (A), JDSU (A), LTD (?), MRVL (A), PSS (B), PLCE (B),
Aug. 19: ANN (B), CHINA (A)
Aug. 22: -
Aug. 23: WSM (B), WIND (?)

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.