I was rather off the mark heading into Wednesday's session. After the close near the day's lows on congestion the day before, I had expected further downside into the next morning before we would see it turn higher. Looking back at the trend action, however, past development with this type of reversal off lows has it moving higher for a couple of days even without a much larger correction off the first highs of the reversal (from 4 days ago).

It was necessary to switch gears right away into the open due to strong premarket buying. The market had crept higher in afterhours and premarket trading, but then around 3:30 am ET they stalled and congested along the highs until the 8:30 am ET economic data. At that point the range broke sharply higher. The government had revised unit labor costs downward, reporting a 2% annual decline in labor cost as compared to the 0.2% drop estimated in November. This indicates a decline in inflationary pressure and happy news for the bulls to latch onto. Additionally, the Labor Department said that productivity in the nonfarm business sector rose at a 6.3% annual rate, which was 4.9% higher than estimates were reported at.



Wednesday's upside gap was a form of a breakaway gap. This meant that it was a gap out of the pullback from the past couple of sessions, so the gap would have a more difficult time attempting to fill. This immediately led to a change in my intraday bias away from the bearish side. Not much happened shortly after the open, although the indices did hold up quite well. They waited around for the 10:00 ET data to hit. At that point the Commerce Department reported that orders for U.S.-made factory goods rose 0.5% in October. This marks the largest gain in three months. The Institute for Supply Management also stated at this time that its nonmanufacturing index declined to 54.1% in November off a 55.8% level the previous month. This was a larger than expected move. The direct response to the data was a rapid spike in prices, although they reverted to pre-data levels intraday at 10:30 ET before again resuming the upside at a strong pace.



The mid-day market move, following a strong gap and early morning chop, created the perfect conditions for the market and a number of individual stocks to roll over around noon. Blyth Inc. (BTH) and Paccar Inc. (PCAR) were two excellent examples which caught my eye, where the early morning strength wavered and lead to a nice mid-day pullback. The market overall pulled back with two decent waves of selling on the 15 minute time frame into the mid-afternoon. Typical corrective moves within a larger trend then have a habit of turning back around. Since the daily now favored more upside, the intraday and daily time frames worked together to lead to a move upwards out of the 15:00 ET correction period and then through the intraday highs after a brief base into afterhours trading.



Although the buying continued for much more substantial gains afterhours, the Dow still climbed 196.2 points (1.5%) intraday to close at 13,445. 29 of the 30 Dow components posted gains. The S&P 500 rose 22.22 points (1.5%) and closed at 1,485.01. The Nasdaq Composite had the strongest move thanks to morning upside. It gained 46.53 points (1.8%) and closed at 2,666.36.

Intel Corp. (INTC) was one of the strongest of the well-known names on Friday, advancing 3.5% following an upgrade. American International Group Inc. (AIG) also posted strong gains. It rose 4.9% with reassurance by its CEO in response to subprime mortgage concerns. As I mentioned earlier, I am anticipating the buying to continue for about two more days. I do, however, expect the overall momentum to be much less than earlier last week and possibly with greater overlap from one day to the next as well. Keep an eye on the 5 minute chart of the S&P 500 from the afternoon of the 29th for a comparable pattern development to the one occurring at the point on the daily time frame.

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.