The market took a turn once again on Thursday, but the S&P 500 and Dow Jones Ind. Ave. vastly underperformed as compared to the Nasdaq, which held up comparatively well. Apple Inc. (AAPL) had a lot to do with this. AAPL closed higher by 5.7% after the company announced that it is confident that it will meet its 2008 iPhone sales targets. AAPL had the help of a strong daily swingtrade setup heading into the session with momentum shifting on the daily time frames coming off a third low at prior monthly lows. The leaders in the Dow included Verizon Communications (VZ) (+2.2%) and AT&T (T) (+2.2%).

Despite these popular issues closing in strongly positive territory, the market as a whole lost ground. The Dow fell 112.10 points, or 0.9%, and closed at 12,582.18. Its top loser was American International Group, Inc. (AIG) (-4%). The S&P 500 lost 12.34 points, or 0.9%. It closed at 1,367.68. The Nasdaq Composite, despite the greater relative strength throughout most of the session, also closed lower by 0.9%, or 22.21 points, at 2,331.57.

A couple of economic releases prior to the open influenced some of the early morning action on Thursday and weighed upon the market throughout the day. Fourth-quarter gross domestic product was revised a tick lower than expected to a 0.6% growth. This marked 2007 as the slowest economic growth in five years, rising at a rate of 2.2% when adjusted for inflation. Consumer inflation was revised higher to a 4.1% annualized pace in Q4, up from 3.9%. Core inflation remained unrevised. Consumer prices rose 3.4% in 2007, while core prices rose 2.1%.

In a separate release, the Labor Department reported that first-time claims for unemployment benefits rose 19,000 to 373,000 last week, this brought those claiming benefits rose to the highest level since Hurricane Katrina.

After gapping lower into the open, the market began to correct, holding the lows thanks in large part to strong support on the 15-minute time frame from Tuesday's early morning price congestion. The first half of the morning was extremely choppy. The market made it's way higher, but could not manage to sustain any decent upside. It was enough, however, to push the Nasdaq to a slightly higher high. These were the very minor highs the market had the potential for heading into the day, but the S&P 500 and Dow both held the 5-minute 200 simple moving average resistance intraday and did not do as well. In the S&Ps this corresponded to a closure of the morning gap, but the Dow only managed to make its way back into Wednesday's afternoon lows. All of these resistance levels hit at the same time into 10:45 am ET and then led to the larger 60-minute correction we were watching for.

When the market reversed, it did so quite swiftly. The initial drop took it to the lower end of the morning's uptrend channel where it paused for a few minutes before plummeting to new intraday lows into 11:00 ET. This created a third wave of selling on the 15-minute time frame in both the S&Ps and Dow and the continuation tool the Nasdaq into the lower end of its trading channel on the same time frame. The momentum shifted as the downside came into support. The result was a bit of a turn-around into noon, but the shift on the the larger 15-60 minute charts was more powerful and the market had a tough time getting off the ground.

The market managed a 50% retracement of the intraday range coming out of 13:00 ET, but the congestion did not start to give way to more solid intraday moves until just after 14:00 ET when the mid-day range broke highs, taking the indices back into the zone of the intraday highs. Another shift in momentum, similar to the one off the morning lows, but in reverse, took place into 15:00 ET and the market sold off steadily for the next half hour, continuing into afterhours trading. As I mentioned yesterday, I am expecting this correction to hold into the weekend. Further downside into early next week is likely as a result of the 60-minute reversal.

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.