Wednesday's Fed day began on a slow note. A gap lower into the prior afternoon's lows held, and the typical rally which occurs on a Fed day began at about the 9:45 am ET correction period. The Nasdaq, which had underperformed in recent days, actually took over as a market leader and closed its gap the quickest. Both the S&P 500 and Dow Jones Ind. Ave. closed their gap zones around 10:15 am ET at the same time as their 5-minute 20-period simple moving averages hit. A second attempt at a tighter close came heading into 11:00 am ET, while the Nasdaq moved into Tuesday's highs.

The Tuesday resistance levels held very well as momentum slowed on the upside. The indices began to retrace the morning's gains off those levels as light volume failed to create a significant impetus for the bulls to push higher. The volume continued to decline throughout the mid-day trading and into the 2:15 pm ET correction period. The Nasdaq Composite bears returned and it once again began to slide the quickest, while the S&Ps and Dow fell into a trading range until the news hit.

Although many had been looking forward to a 50 basis point cut in the Fed's lending rate, a 25 basis point cut was viewed as a given and the added 25 still caught a number of investors off guard and sent them rushing to buy what they initially considered to be welcome news. The Dow had been down around 30 points going into the Fed. When the news hit the wires all of the major indices spiked higher.

The three waves of post Fed action first took the market to new intraday highs before the second wave hit going into 14:30. The market retraced approximately half its gains before making a third move. This time it was again higher, but volume was lighter and the momentum was slower. By this point the Dow was up almost 200 points and well into the 12,600s level we had been looking at since last week as daily resistance. The S&Ps had also hit the lower end of the daily resistance zone I had drawn on the charts for last Friday's commentary, as well as the 20-day simple moving average we'd been watching. While the Nasdaq failed to even come close to those levels, the other indices held and began a strong and sustained move lower in the final hour of trading.

The Dow ($DJI) closed at 12,442.8, which was about where it was trading prior to the Fed rate announcement. It lost 37.47 points, or 0.3%. American Intl Group (AIG) was its biggest loser, falling 2.36 points, or 4.16%. In second place was Merck & Co (MRK) with a 1.32 points, or 2.75% loss after it reported fourth-quarter losses of $1.63 billion. The Dow's top gainer was Boeing Co (BA) with a 1.91 point gain, or 2.36%, on Q4 earnings. Disney (DIS) followed with a 0.61 point, or 2.12% gain.



The S&P 500 ($SPX) fell 6.49 points, or 0.5%, on Wednesday. It closed at 1,355.81. Leading the index were Robert Half Intl Inc (RHI) with a 12.6% gain, ETrade Financial Corp (ETFC) with a 10.14% gain, Range Res Corp (RRC) with a 7.18% gain, Dover Corp (DOV) (+6.93%), C H Robinson Worldwide (CHRW) (+6.18%), and Unisys Corp (UIS) (+6.06%). Ambac Finl Group (ABK) and MBIA (MBI) were its weakest components, falling hard on concerns that they would lose more than earlier estimated from guarantees sold on mortgage-related securities. ABK closed lower by 16.09%, while MBI lost 12.64%. Allstate Corp (ALL) was also among the losers, falling 7.2% on earnings.



The Nasdaq Composite ($COMPX) lost 9.06 points on Wednesday. This amounted to -0.4%, which was fairly comparable to the Dow and S&Ps. It ended the day at 2,349. The biggest gainer in the Nasdaq 100 was Flextronics (FLEX), which rose 12.51% on earnings news. CHRW was the second strongest, while XM Satellite Radio Holdings (XMSR) was third with a 4.47% gain. Yahoo Inc (YHOO) was the top Nasdaq loser, dropping 8.5% on weak earnings data. Sepracor Inc (SEPR), which had been in positive territory earlier in the day, reversed and began to plunge lower into the afternoon. It ended up down 4.94% by the closing bell.



The Russell 2000 ($RUT) closed lower by 9.71 points, or 1.4%, at 695.49.



Following the closing bell, the index futures continued to sell off, extending the afternoon losses until just after 6:00 pm ET before finally becoming exhausted and rounding off with a slow correction off lows into the early morning hours. It's about 1:45 am ET now and the ES (S&P 500 EMini) is up about 13 points off the afterhours lows. The YM (Mini-sized Dow) is up about 80 points. Although rounded lows tend to hold better than those made on a sharper pivot or "v" bottom, I am still concerned that the market will try to correct more off the daily resistance. Should they hold, it would make it harder to break those levels at all and more likely push the indices into a larger weekly trading range. In order to make it to the next resistance level from the end of last year in the Dow and S&Ps I'd want the 20-day sma to break by the end of this week to do so. It can still lead to a larger weekly range, but would be less likely to give us as much intraday chop next month.

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.