The market went from one extreme to the other on Wednesday. The session began with strong gains on a sharp upside gap on news that the Fed had planned to add liquidity to the markets, helped by several foreign banks, including the European Central Bank and the Bank of England. Right away, however, it became obvious that the bulls were not at all convinced that this was enough. Despite the stronger-than-average gap, the indices were soon displaying marked weakness, with very little suggestion that any intermediate support zone would manage to hold.



As the indices headed lower throughout the morning, all attempts to hold modest support zones quickly failed. Upside momentum simply could not surpass that of the sellers, even in the short term. Small support levels from Tuesday afternoon stalled the selling at several points, but buying off each support level was lacking ambition and the momentum remained extremely pessimistic for the bulls. Each gradual move higher culminated in a bear flag and continued selling with the typical two-wave correction pattern holding. This meant that each of the main bear flags experienced two waves of upside within the flag before giving way to further selling.



The strongest decline of the day came shortly after 14:00 ET. The selling began at a normal pace off the 15-minute 20 sma resistance after a lighter volume correction, but a small base at lows for gave way to a very steep downside move into 15:00 ET. This move flushed the market into those lower lows I mentioned yesterday. The intraday reversal was rather late in coming, however, and it was only in the final 45 minutes of the session that it whipped back. This created the hammer candlestick pattern I mentioned, but just barely! It definitely wasn't looking too likely heading into the last hour of the day! The reversal was so quick that I missed it myself, but the market did make back a large chunk of the intraday losses.



At the end of the day the Dow Jones Industrial Average closed lower by 41.13 points. It had been up 271 out of the open. Citigroup (C) was one of the largest Dow losers, falling 5.3% on the session, while AT&T (T) rallied another 5.7%. The S&P 500 ($SPX) and Nasdaq Composite ($COMPX) both still managed to close in positive territory. The S&P 500 rose 8.94 points and closed at 1,486.59, while the Nasdaq rose 18.79 points and closed at 2,671.14. So far this action still lends itself to our scenario of greater overlap and choppy, slow upside this month from this point onward. What we need to see at the point is for the lows on Wednesday to not give way to another strong selloff. I don't think this is likely though quite yet.

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.