The market pulled in on Wednesday, continuing the correction which began Monday afternoon following several days of strong upside momentum. The day began with a moderate gap lower, brought about by afterhours selling when the gradual upside momentum triggered a breakdown into the final hour of trading on Tuesday. The durable goods data came out ahead of the open, but had very little impact upon immediate trade action. Orders for durable goods, which is used to gauge business spending, fell 1.7% in February. Such activity is typical during recessions and provided further evidence of one currently underway. The technical breakdown pattern on that 15-minute time frame, however, continued into the open and the downtrend remained in play until the 10:45 ET correction period hit.

Support was extremely strong at the 10:45 ET levels. The Nasdaq had ran into Tuesday's lows, as well as its 5-minute 200-period simple moving average. The Dow Jones Ind. Ave. had closed its Monday morning gap and had hit an equal move support level as compared to the reversal off Monday's highs and into Tuesday morning. Even the S&P 500 had support in the form of Monday's opening price.

The market bounced well as it came off the lows. The momentum was sharp initially, and although it slowed as it ran into resistance again into noon, it was unable to resume the earlier downside with any conviction. Volume dropped off significantly and the market merely chopped lower over noon and into the early afternoon. 14:00 ET is a key turning point in the market in afternoon trade. By maintaining the base into that level and pulling up into the 5-minute 20-period simple moving averages, the bias turned in favor of the bulls.

The market immediately began to rally as the 14:00 ET correction period hit. The initial wave of buying took the indices into the upper end of the mid-day trading range. At that point is stalled and the S&Ps and Dow both formed small two-wave continuation patterns on the upside into 15:00 ET. Adding fuel to the fire were another strong late day pop in Bear Stearns (BSC) thanks to intervention from the Federal Reserve and the announcement from Rambus (RMBS) that a federal jury voted in its favor in an anti-trust/fraud suit. These events took place at approximately the same time and the market shot higher.

Unfortunately the indices did not have as easy of a time maintaining the late day gains as it had making them. After peaking into 15:00 ET they began to swiftly retreat. The selling continued into the close with losses of 109.74 points in the Dow ($DJI), or 0.9%. It closed at 12,422.86 with Citigroup (C) falling 5.8% and J.P. Morgan dropping 4.2%. Another top loser was American Express, which closed lower by 4.5%. The S&P 500 ($SPX) dropped 11.86 points, or 0.9%, on Wednesday. It closed at 1,341.13. The Nasdaq Composite held up somewhat better, but still posted losses. It fell 16.69 points, or 0.7%, and closed at 2,324.36. I am favoring some downside in the morning on Thursday, followed by another round of buying into the close. My bias, however, is not a strong one and I am going to mainly be watching for the opening price levels to provide some better guidance.

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.