In Tuesday's session we saw the market break down out of a multi-day trading range at the year's lows. The indices primarily congested throughout mid-day with some slightly lower lows and then in the afternoon attempted another breakdown. This move did not have a chance to pick up on the momentum from earlier in the session, but the mid-day congestion had held on a minor correction off lows just prior to the close and the selling resumed afterhours. This downside then continued into Wednesday's morning trading and the market was able to resume the larger 15-minute breakdown that it had been robbed of in the prior afternoon.

After an initial wave of selling into the close on Thursday on the 5-minute charts and into Wednesday's open with the gap lower, the market attempted a minor rally. The small gap was easily filled, but the 5-minute 20-period simple moving average held as resistance and a second wave of selling on the 5-minute time frame was soon under way. Trends typically come in waves of two or three with corrections more likely in waves of two and more directional trends in waves of three. Since the market still had plenty of room before the morning breakdown even came close to mimicking Tuesday's morning selloff and the larger trend was to the downside, it made it easy for the market to continue the trend with a second correction around 10:15 am ET. The third wave of selling on the 5-minute charts took the indices to new lows intraday before concluding.



Morning trend moves in the market have a habit of correcting on larger time frames heading into lunch. This is what had happened on Tuesday and Wednesday followed suit. Since Tuesday's correction was more of a congestion move and the breakdown momentum into Wednesday was not as strong as Tuesday's, it created the potential for a larger price correction off Wednesday's morning lows than when compared to the prior session.

The market popped higher off the morning lows and into the 5-minute 20 sma, which had been holding as resistance throughout the morning. It then proceeded to fall into a sloppy range as it congested on the 5-minute time frame along that moving average resistance level. This resistance corresponded to earlier intraday congestion as well for those who do not use moving averages to help identify support/resistance levels.

Congestion zones often last a bit longer than the move leading into the congestion before they can break and continue. This took the market into about 11:45 ET before the buying resumed. The momentum was once again on the stronger side and the market was able to rally into the morning's highs, as well as the mid-day congestion from Tuesday. Another bonus in the resistance department which hit at the same time was the 15-minute 20 sma. All of these worked together with the 12:00 noon correction period to hold back the buyers over the next several hours.



The momentum turned over somewhat into the early afternoon, but the bears never gained the upper hand. The earlier trading ranges from the morning served as strong support and the market merely rounded off at them once they hit. It did take until the 14:00 ET correction period before the bulls really felt comfortable making a stand again, however, and this was due in part to the release of the Fed Beige Book at that time.

The market gained momentum throughout the middle of the afternoon and rallied back to the upper end of Tuesday's mid-day congestion. The 5-minute 200 simple moving average held at the same time and indecision arose once more into the final hour of trading. The market had reacted sharply to the afternoon resistance, fell into the 5-minute 20 sma and continued with an Avalanche short setup into the final thirty minutes of trading, essentially repeating the mid-day correction off highs but on a larger scale and with stronger downside momentum.



Remember how earlier I mentioned that corrective moves will often come in two waves? Well, the morning rally, followed by the upside continuation into the afternoon created two such waves. This makes it possible now for us to again see some more downside into Thursday. Neither the downside nor upside moves on the 15-minute time frame on Wednesday were particularly extended. This increases the risk that further downside can be a bit more on the choppy side and that as the market corrects off lows on the 60-minute charts we will see more of a rounding off at those lows as opposed to a sharp pivot or "V" type of bottom on those time frames, although it can still appear as such on a daily time frame. Right now it is still a little too early to tell, however, and you will want to monitor the pace on the intraday moves on the 60-minute time frame closely over the next day or two since it is likely to take that long for momentum changes on that time frame to begin to establish a larger bias.

Despite the turnaround off the day's lows, the market had a difficult time holding onto the afternoon gains and closed with losses across the board. The Dow Jones Industrial Average ($DJI) lost 34.95 points, or 0.3%, to end the session at 12,466.2. 16 of the 30 Dow components closed lower. J.P. Morgan Chase (JPM) was one of the exceptions. It gained 5.8% after earnings despite a 34% decline in 4th-quarter profit, which was better than many had feared. Citigroup Inc. (C), on the other hand, fell 2.6%. The largest hit in the Dow came from Intel Corp. (INTC). It dropped a whopping 12.4% on Wednesday. Even though it reported a 51% increase it net profit, it did not live up to expectations and its forecast for the new year was disappointing. In the other indices, the S&P 500 ($SPX) shed another 7.75 points, or 0.6%, and ended the session at 1,373.2. The Nasdaq Composite ($COMPX) lost 23 points. It closed at 2,394.59.

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.