As trading wrapped up on Wednesday afternoon the indices were favoring upside into Thursday morning, but without enough of a correction to easily push the ES (S&P 500 EMini) to new highs. I walked through a couple of scenarios in yesterday's column, dealing with the previous 15-min highs as resistance, but neglected to name the one whereby we saw a gap into that level to then allow for that larger intraday pullback I was wanting to see before the market attempted to really break higher again. So, we still ended up with the same outcome, but the pullback came faster than it would have had the market not gapped and instead had to climb throughout the morning.



The gap itself was the strongest in the Nasdaq ($COMPX) in that it busted the index through the highs of the prior several trading days, but it had a higher level base into the close than the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) had. The S&Ps gapped right into Wednesday's morning highs and price resistance, while the Dow gapped into the afternoon resistance. These opening levels held and a small congestion in the first 15 minutes of so of the day gave way to a strong round of selling in the S&Ps and Dow. The Nasdaq also broke lower, but lacked the momentum of the other two indices.



The morning momentum slowed after the S&Ps and Dow closed their gaps. At the same time the Nasdaq came into support from Wednesday afternoon highs and the 5-minute 20-period simple moving average. A bear flag formed at those support levels and the market continued to sell off into noon, although the Nasdaq merely made lower highs and held the lows. The slower selling into noon with a lot more overlap in all three of the major indices created a bullish bias once again for the afternoon. The morning drop also was enough of a flush to make it easier to sustain upside on the larger 30-60 minute time frames, which is what we were lacking heading into the session.



The S&Ps and Dow crept through the upper resistance of the second drop of the morning into noon. The lack of momentum shift on the 1-2 minute charts allowed the indices to flush again on a 2-minute time frame into 12:30 ET. This last flush into the larger 15-minute support at the previous day's lows in the S&Ps and Dow and the 15-minute 20 sma in the Nasdaq was a perfect opportunity for the bulls. The market popped quickly, stalled only a few minutes and then began a steady rally back into the earlier morning price levels. The Nasdaq, which had outperformed throughout the session, easily broke through the morning highs.

Resistance hit again at about 14:30 ET and from that point into the close the market remained range bound, but began forming another buy setup on the 5-minute time frame. It triggered in to the close and continues steadily higher as I write this (2am). At the time of the closing bell, however, the Dow was only up 38.37 points. It ended the session at 13,288. Technology led the move with 1.6% gains in IBM and a 2.1% gain in MSFT. The S&P 500 rose 7.12 points during regular trading and closed at 1,460. The Nasdaq Composite gained 1.5%, outshining the Dow and S&Ps combined. This was a 39.9 point move which closed at 2,640. ORCL and RIMM were two of the other major tech leaders. I am anticipating a slower Friday, but the potential has increased for a trend day or at least for a good chunk of the day as we come out of the range that has been in place since the 17th.

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.