After falling sharply after an initial rally on Wednesday's Fed announcement, the index futures continued lower in afterhours trading. These losses accelerated sharply following the 8:30 am ET unemployment data. The data caught many off guard when the Labor Department reported that initial claims for state unemployment benefits rose 69,000 last week, hitting 375,000. This is the highest level since early October, but also marks the strongest weekly jump in claims since September 2005, shortly after Hurricane Katrina struck.

The gap into the open left the market with a bullish sentiment. I wrote a bit last week about how these extreme gaps leave the market extended and with strong odds for a gap closure. Thursday's open brought with it yet another example of just such a situation, making me bullish out of the open despite the appearance of weakness. Even though the market was very slow to fulfill this bias initially and came into the 5-minute 20-period simple moving average around 10:30 am ET with a short pattern under development, I chose to not go against the larger odds and went to grab lunch instead. Unfortunately, the upside picked up a little more quickly than I'd anticipated and I missed a large chunk of the mid-day rally which followed once the 5-minute 20 sma gave way.

Trader tip: Real traders bring lunch with them to their desk before the market opens or else wait until after the close to eat and they never consume any liquids so they don't need to leave their chairs at all during the day! HAHA! Ok, so not really, but it's sure tempting at times! It definitely helps, however, to eliminate as many distractions as possible. This can be a challenge if you trade in an office with others or at home where folks tend to not respect the fact that simply because you are home does not mean that you are readily available and not actually working.

After the breakout to new highs intraday around 11:00 am ET, the market continued to gain momentum with three waves of upside on the 2- and 5-minute time frames. Each move was more extreme than the last, but most trend moves last three waves when the corrections times are comparable between each wave. This meant that the move just prior to 12:00 ET exhausted the trend and left it open for a larger correction into the early afternoon. At that point I was assuming a slower pullback with the possibility that we'd end up stuck in a range the remainder of the session. I think that in many ways that would have suited the market a bit better. The indices instead had held lows around 13:00 ET and because to break higher too early on a 15-minute time frame. The market didn't have enough time to really correct from the morning move to sustain comparable momentum. The result was a very hesitant climb throughout nearly the entire remainder of the day.

The strong overlap from bar to bar and slower pace of the afternoon move created the risk that at an moment off any resistance level the rally would fall apart and take back all gains. This made it difficult to time an entry if you missed the initial setup, since even a channel break for a stop runs the risk of getting flushed hard so that exits at the ideal prices would be more difficult. I switched to stocks fairly early in the afternoon to avoid this risk. The market did fairly well though, making it back into the previous day's highs before that flush took place. A glance at the 5-minute time frame, however, shows just how quickly gains made during a slow upside such as from 13:00 ET onward can disintegrate in just a matter of seconds at times. In one 5-minute bar all three indices had given back about an hour's worth of gains.

The Dow ($DJI) closed on Thursday at 12,650.4 with a gain of 207.53 points, or +1.7%. The gains were not unanimous, however, and 2 of the Dow's 30 components closed lower. These were Merck and Co (MRK) and Altria Group Inc (MO). Top leaders were Home Depot (HD) and American Express Co (AXP). The monthly losses in the Dow came to 4.6%, which was the worst one-month decline since January of 2002.



The S&P 500 ($SPX) rose 22.74 points, or +1.7%, on Thursday. It closed at 1,378.55. The loss on the month came to 6.3%.



The Nasdaq Composite ($COMPX) rose 40.86 points, which was also a +1.7% rally. It closed at 2,389.86. For the month as a whole it still lost 9.9%, which was also the worst performance since January 2002 for this index. Amazon (AMZN) was one Thursday's top performers and one of my afternoon positions. It gained 4.7% on the session, providing a great alternative to trading the index as a whole.



Going into Friday I am expecting the market to slow. A lot of Thursday's gains were attributed to assurances from the bond-insurance company MBIA (MBI) that it would be able to ride out the mortgage market woes. There is a higher chance of a trading range day, but the market is still trying to head into those larger weekly resistance levels from last December, so as long as the selling is kept modestly at bay on Friday then I am looking for more upside into next week with the highs from the second week of January as the next decent daily resistance the market will need to deal with.

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.