The market once again experienced an extreme gap on Wednesday. As on Tuesday, the gap was to the upside. The index futures had popped sharply following Tuesday's close. Intel Corp. (INTC) had announced that it expected revenue to beat analyst expectations and predicted a 56% gross margin for the second quarter. J.P. Morgan (JPM) also provided a boost for the bulls. The first-quarter profit cut that had been anticipated ended up being less than analysts had predicted.

I underestimated the impact of the INTL news when I wrote last evening's column, but the market has some fairly stringent guidelines for gaps such as this. If it starts to close within the first 15 minute of the day, then it will typically fill within the first couple of hours. If it holds, such as bases or pulls higher, then the gap will have significantly lower odds of closing and trend days in the direction of the gap become more likely. Since this particular gap was also off that 60 minute support zone we had been looking at over the past couple of days, it made it even easier for the market to hold up once the initial opening trade action had passed.

After slight upside at the open, the market headed a little higher after the first 15 minutes, but then fell into a trading range along the highs for half an hour. The 10:15 ET correction period held and the indices broke sharply to new intraday highs. This was the strongest move of the session, but the momentum slowed between 10:30 and 11:00 ET. The 11:00 ET correction period held in the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI), but the Nasdaq Composite ($COMPX) continued to push to new highs intraday.

From 11:00 to 12:00 ET, the S&P 500 and Dow corrected by falling quickly off highs for several minutes and then hugged support, creating a small 5 minute Avalanche pattern into noon. This resulted in a two-wave pullback for a continuation buy setup in the to the early afternoon. The market again moved to new highs, albeit barely, into 12:30 ET before falling into a larger correction throughout the rest of the first half of the afternoon.

Market volume was high on Wednesday, but it declined somewhat as the indices pulled back, forming a series of tiny bear flags into 14:30 ET. The gentle pace and the lighter volume, in addition to the 15 minute 20 period simple moving average support created the high probability that the market would hold its bias and remain bullish into the close. The indices formed a small congestion after breaking the gradual downtrend along the 5 minute 20 sma. This broke at 15:00 ET, first leading the market to a retest of the afternoon highs and then pushing through them. The S&Ps took over the lead, while the Nasdaq faltered somewhat in the final 30 minutes of trade. All three indices, however, closed near the intraday highs and the index futures busted through those levels following the closing bell.

The Dow gained 256.80 points on Wednesday, or 2.1%. It closed at 12,619 with 28 of its 30 components in positive territory. The S&P 500 rose 30.28 points, or 2.3%, and closed at 1,364. The Nasdaq Composite advanced 64.07 points, or 2.8% and closed at 2,350. The Russell 200 outpaced them all, rising 21.33 points, or 3.08%, to close at 713.21. I am expecting the market to continue to push higher in Thursday's session with the highs from the 7th serving as strong resistance. If the market moves higher in the morning, however, it will have a difficult time continuing into the afternoon, so a correction on a 30 minute time frame would then be something to look out for. If it opens relatively unchanged, pulling back again in premarket trading, then it can congest throughout the morning and break higher into the afternoon.








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.