The markets managed another stunning recovery on Wednesday after gapping significantly lower for the second day in a row. After moving higher in the early morning hours on Wednesday, the market turned around quickly. Beginning at about 3:00 am ET the markets began to once again slip lower. By 8:30 am ET, however, the Dow Jones Industrial Average and S&P 500 had managed to complete a three-wave trend move to the downside. This trend exhaustion, creating yet another extreme gap (which, as we saw yesterday, tend to fill) made it very favorable for the bulls to once again position themselves into the open.



Although things were a bit slow in the first 15 to 20 minutes of the day, the buying slowly built up steam and the market pushed higher over the next half hour. The S&Ps and Dow easily closed the morning gap zone, but unfortunately this was also a very strong resistance zone and the momentum stalled. We had seen the same thing happen just the previous day. The Nasdaq continued to severely lag, weighed down by a disappointing forecast for the second quarter from Apple (AAPL).

In addition to the gap closure resistance, the market also had to deal with price resistance from the previous session, as well as a number of moving average levels coming together. These included the 5-minute 20-period simple moving average intraday and the 15-minute 20 sma in the S&P 500 and Dow. The indices began to slide down these moving average resistance levels as the morning wore on, falling into 10:45 am ET where they formed 5-minute Avalanche patterns by basing along support before giving way to additional selling between 11-11:30 am.



The mid-day downside was rather choppy, but around 12:45 pm ET the S&P 500 and Dow ran into price support on the 15-minute time frame from earlier in the session and from Tuesday's trading. The drop into 12:30 pm ET was also a third move on the 5-minute time frame in the S&Ps and Dow, completing a trend move. The market began to recover somewhat slowly, puling up into the 5-minute 20 sma. The indices then based along the 20 sma for about 20 minutes before triggering a buy setup at about 13:15 ET. The buying was choppy, but steady, and before long the S&Ps and Dow were back at their morning highs.

Very few of the afternoon correction periods held well on Wednesday, but the 15:00 was the exception. The market had pulled back on the 5-minute time frame after hitting the morning highs and corrected into the 5-minute 20 sma support at the same time as the correction period hit. They worked together to lead to the strongest upside move of the entire day. Buying remained steady from that point onward into the closing bell. The Nasdaq closed its gap zone and the S&Ps and Dow broke Tuesday's highs with all three of the major indices closing in positive territory.



The Dow Jones Ind. Ave. ($DJI) gained 298.98 points, or 2.5% on Wednesday and closed at 12,270.2. The S&P 500 ($SPX) rose 28.10 points, or 2.1%. It closed at 1,338.60. The Nasdaq Composite also managed to lock in some gains. It rose 24.14 points, or 1.1%, on Wednesday and closed at 2,316.41. The afternoon rally created an equal move on the all sessions charts of the EMini S&P 500 and Dow futures contracts as compared to Tuesday morning, but for the Dow, the intraday point swing of 625 points, or 5.4% was the second largest point change ever. The largest was a 702 point swing on July 24, 2002 amounting to a 9.4% move for you trivia buffs.

One of the best performing sectors throughout this shortened trading week thus far has been the retailers. The rate cuts and widely held belief of further cuts next week have given the retail index a bit of a boost. It is up 9.7% so far this week. Nordstrom (JWN), Circuit City (CC), and Staples (SPLS) were some of the favorites. All were up well over 10% on Wednesday.

The financial sector also took a moment to catch its breath and breathe a sigh of relief... at least for the time being. Wells Fargo (WFC) gained 9%, while Wachovia (WB) was up more than 10%, and JPMorgan Chase (JPM) rallied 12% to come in first place in the Dow. 25 of the Dow's 30 components closed higher, as did 391 in the S&P 500 and 68 in the Nasdaq 100.

Apple (AAPL), Google (GOOG) and Motorola (MOT) were a few of the underperformers adding dead weight to the market's recovery. All in all though, I continue to think we will see this market correct off these levels in the short term. It would not be surprising, however, for the moves to remain a bit of a roller coaster ride along the way. The price levels from January 8-15 will serve as initial daily resistance. This is the 12,600 zone in the Dow.

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.