Volume was decent in Wednesday's session, but trade was choppy throughout. We experienced the continued correction off Tuesday's lows with wider 30 minute swings as anticipated. After gapping higher into the open and continuing higher for the first 45 minutes of the day, however, the market corrected from this intraday move by falling into a sustained trading range until the first half of the afternoon. The Nasdaq Composite hit my resistance target of 2,290 almost perfectly with a high of 2,290.01.

Early in the day, the Institute for Supply Management reported that nonmanufacturing sectors of the U.S. economy contracted at a slower pace in February. The index rose to 49.3 off 44.6 the month before, beating expectations. In other news, nonfarm payrolls grew by 2,000, compared to the 20,000 forecasted, productivity rose at a 1.9% annual rate last quarter, unit labor costs rose 2.6%, and the Commerce Department reported a 2.5% decline in factory orders.

I found it a bit more difficult than usual to locate decent intraday setups. Most of them I located in the late morning and into the early afternoon were in securities which were rounding off at morning highs, creating momentum reversal patterns that favored downside into the early afternoon. This left me more bearish as mid-day progressed, despite the base at highs in the indices.

The large, extended intraday move on the 15 minute time frame, beginning Tuesday afternoon and lasting into 10:15 ET on Wednesday morning, also made it necessary for the market to correct for at least a day to a day and a half before it would have rested long enough to sustain another strong momentum move on that time frame. Although the market attempted to pop higher into noon, it immediately whipped back into the range off the 20 day simple moving averages in the S&P 500, Dow Jones Ind. Ave., and Nasdaq 100 EMinis. The complete lack of confirmation and failure of the market to hold support in the middle of the intraday range increased favor for an early afternoon breakdown.

The breakdown into the second half of the session was confirmed when the market formed a strong 5 minute Avalanche pattern by pulling up off the lower end of the trading range, but holding the mid-day point of the range. Since the volume dropped despite the upside movement, it was easy for the indices to hold the 5 minute 20 sma resistance, and shortly after 13:00 ET the Avalanche triggered.

The 5 minute Avalanche gave way to the strongest move of the entire session. The indices plunged through their 15 minute 20 period simple moving averages, hit morning lows and gap closure support levels, and continued strongly until just a few minutes past 13:30 ET. At this point the indices had made it all the way back into late-day support from Tuesday afternoon, retracing to the 62% Fib level in the S&Ps and Dow and a more modest 50% in the Nasdaq. Fibonacci levels hold exceptionally well in the indices and are a great tool for adding a bit of additional visual clues to your charting.

The extreme downside momentum of the early afternoon descent meant that the market would favor a trading range throughout the remainder of the session on a 30-60 minute time frame. This increased the risk once again since it tends to indicate a more choppy trading environment to come.

Upon hitting support, the market bounced quickly back into the 5 minute 20 period sma as first resistance, holding there for about 20-25 minutes. By hugging that resistance level, it increased the odds that it would break through it to retest the early morning range, but it broke a bit earlier than was desired. The result was a more minor break of the resistance than would have been likely had it held the 20 sma for another 15 minute or so. Instead the market had to pull back into that support level to compensate for the early attempt and the continuation pattern followed through into the close and into afterhours trading. It made it well into that early morning range, but by that point the bell had already rang, so it didn't do intraday traders a great deal of good by that point.

The Dow Jones Industrial Average ($DJI) gained 41.19 points, or +0.3%, on Wednesday and closed at 12,254.99. 18 of the 30 Dow stocks closed higher with Chevron Corp. (CVX) leading the gainers. It closed higher by 2.5%. The S&P 500 gained 6.95 points. It closed at 1,333.70. The Nasdaq Composite rose 12.53 points, or +0.6%. It closed at 2,272.81.

Once again topping news wires, Ambac Financial (ABK) suffered a hit after it halted trading on news that the company would sell $1.5 billion in stock and equity in order to hold onto its AAA rating. It lost nearly all of the prior day's gains, closing lower by 18.8%. In other news, on the New York Mercantile Exchange crude futures rose 5% to hit a record close at $104.52/barrel. Gold futures also made new record highs. They closed at $988.50/ounce, up $22.60.

As the week progresses I am continuing to expect the lows made on Tuesday to hold. The 12,280 zone remains Dow resistance. 2,310 is the next Nasdaq resistance. A trading range on the 60 minute time frame, back and forth within Wednesday's range is quite likely, followed by a stronger trend on Friday as long as we do see that range hold Thursday.







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.