Most sectors finished in positive territory on Thursday after strong upside momentum throughout the morning's trade, giving us the morning rally we had been looking for heading into the day. The session had began rather mixed. The Nasdaq was strong and the Dow also opened higher, but the index futures had fallen around 4:00 am, taking back the earlier evening's gains and the S&P 500 had trouble holding on. Ahead of the open some economic data shook things around a little bit. The U.S. trade deficit has widened dramatically, while weekly jobless claims fell 53,000 to 357,000 last week.

Although the futures were rounding off at the premarket lows, they still managed to pull back one more time out of the open. The S&P 500 ($SPX), which was the weakest of the three, moved all the way back for a retest of Wednesday's lows where it finally found support. The stronger Nasdaq Composite ($COMPX) held the 5 minute 20 period simple moving average. These support zones hit at 10:00 ET and from that point forward the morning was under the command of the bulls.

The indices barely paused to breathe between 10:00 and 11:00 am ET. Small continuation patterns off resistance levels lasted only a matter of minutes before buying set in once again. It did not take long for the indices to recover a substantial portion of the week's earlier losses. The momentum began to slow around 11:00 am ET, but this reversal pattern off lows made it unlikely that the remainder of the day would experience another strong trend.

The indices rounded off at highs over mid-day on Thursday. The Nasdaq had taken back about 62% of the week's losses, hitting Fibonacci resistance at highs, while the S&Ps reclaimed approximately 50% of the prior three day's losses. Although the market was rounding off, my bias remained primarily range bound with expectations that the market would hold onto the majority of the move off Wednesday lows. There were still some strong moves on the 5 minute time frame as the afternoon passed by. It was enough to offer futures traders some decent setups since support and resistance levels and trend action was very orderly.

The S&Ps and Dow both displayed the greatest weakness in afternoon trade, but then again, the only sectors to post losses on Thursday were concentrated on the NYSE in telecommunications, oil, utilities, banking, and particularly in the broker/dealers. The strongest sector was biotechnology, which is heavily concentrated on the Nasdaq. The biotechs gains nearly 5% in Thursday's trade on average. Other technology-related sectors also posted strong gains. Additionally, the airlines made a nice recovery, adding nearly 3% on average after sharp downside on Wednesday.

When the closing bell rang on Thursday the Dow Jones Ind. Ave. was still up 54.72 points, or 0.44%. It finished at 12,581.98. INTC, HD, MRK, IBM, DIS, UTX, DD, and HPQ all gained more than 1%. Although AA was the only stock to close lower by more than 1%, JPM came close. The S&P 500 rose 6.06 points, or 0.45%, and closed at 1,360.55. The Nasdaq Composite climbed 29.58 points, or 1.27%. It closed at 2,351.70. Stocks gaining over 5% on Thursday included ROST, UAUA, AMGN, PETM, and ISRG. XRAY and ESRX were among the top losers. Meanwhile, the Russell 2000 also posted strong gains. It rose 9.04 points, or 1.29%, and closed at 707.42.

On Friday the market is favoring congestion in the morning, followed by upside once again into the afternoon. Monday's highs will serve as the resistance zone in both the Dow and Nasdaq Composite, while last Wednesday's and Thursday's highs will be strong resistance for the S&P 500.







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.