Heading into Wednesday's session, the market was shaping up for a larger correction off highs following the 2 1/2 days of upside in the market, whereby it had held the 15-minute 20-period simple moving average throughout the rally. The indices complied right away by gapping lower to open under the 15-minute 20 sma into Wednesday. The gap took the indices into strong support, however, making it difficult to continue the correction past the first several minutes. The Nasdaq Composite had hit the mid-range level from Monday's congestion, as well as its 5- and 15-minute 200-period simple moving averages. The S&P 500 and Dow Jones Ind. Ave. hit support from Monday's highs. The result was that these prices held right away and within a few minutes the market was making an attempt to close the gap.

It was choppy going, but the indices did manage to close the gap zone with the 10:15 ET correction period. That gap level was resistance and the market quickly pulled back off those highs. Just 15 minutes later the onslaught of news moving the markets, which began last Friday, hit once more when the Office of Federal Housing Enterprise Oversight disclosed the pending removal of the restrictions which had been imposed upon Fannie Mae (FNM) and Freddie Mac (FRE) following accounting mistakes. Both stocks soared and the market was happy to tag along.

The news-fed rally took the indices back into the prior 15-minute highs from Tuesday. Given the extended 60-minute time frame and the need for a larger correction, the indices found it impossible to break through that resistance. It attempted the feat three times throughout mid-day trading, but each move was on light volume and the momentum began to favor a breakdown into the mid-afternoon. The fact that each of the mid-day highs corresponded to a strong correction period assisted with the reversal. The first high was made into 10:45 am ET, with the second at noon, and the third into the 13:00 ET reversal period.

The downside momentum immediately picked up once the lower trend channel from the mid-day range gave way. It took the market back into the early morning highs, at which point they formed a nice little continuation pattern into the 14:00 ET correction period, followed by a third move into the early morning congestion. The market found support at 14:30 ET and held really well, pulling higher again for about an hour. The final hour of the day was quite choppy, and when all was said and done the Dow and S&Ps barely posted a change over the previous day's close.

The Dow Jones Ind. Ave. ($DJI) added 9.36 points, or 0.1%, and closed at 12,725.71. The S&P 500 ($SPX) lost 1.27 points, or -0.1%. It closed at 1,384.87. The Nasdaq Composite ($COMPX) did a bit better. It ended the session up 8.79 points, or 0.4%. It closed at 2,356.88. Despite the excitement, not even FRE and FNM were able to hold onto their gains. FRE lost $0.12 and FNM closed higher by only $0.30 despite them both being up more then $4.00 earlier in the day.

In other news, the euro hit a new high once again against the battered dollar. Gold also hit record highs for April delivery. Assisting these moves were data showing new-homes sales falling again in January, this time by 2.8%, while orders for durable goods declined 5.3%. Comments from Fed chairman Bernanke signaled that the fed was likely to continue to lower rates into the next meeting in further attempts to combat the current economic woes of the nation. Although the market has room still for some slightly higher highs on the 60-minute time frame, I am continuing to expect more of a correction into the weekend.

Dow Jones Industrial Average ($DJI)


S&P 500 ($SPX)


Nasdaq Composite ($COMPX)


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.