The market struggled to find a strong directional fit on Thursday following mixed earnings from top names such as International Business Machs. (IBM), Ebay Inc. (EBAY), and Altera Corp. (ALTR). These three had announced earnings after the close on Wednesday and were followed by large upside gaps in IBM and ALTR and a strong downside gap in EBAY. Nokia Corp. (NOK) and Merrill Lynch (MER) both announced ahead of Thursday's open. NOK was severely beaten, while MER managed to recover from a slight downside gap.

After heading sharply higher Wednesday in afterhours trade, the index futures slowly, but steadily, reclaimed most of the gains during the premarket hours. The premarket economic data had very little impact, but were not helpful in providing a further upside boost. Jobless claims rose 17,000 last week to hit 372,000. This was pretty much in line with expectations.

When the session began, the Nasdaq 100 EMinis (futures symbol NQ) were in positive territory by a hair, while the S&P 500 EMini (ES) and Dow Jones Industrial Average (YM) was slightly negative. Not a lot of action took place within the first 15 minutes of trade, but all three indices did close their gaps during that time and then fell quickly lower for several minutes at 10:00 ET. This two-wave pullback on the 5 minute time frame created a buy setup into 10:15 ET.

Although the Nasdaq had the stronger open, the S&Ps and Dow took over coming off the early morning lows. Both indices pushed quickly into the prior afternoon's intraday highs, breaking them by a hair and then retesting them a second time about 15-20 minutes later. This rapid retest created a 2T pattern on both the 5 minute and 2 minute time frames, resulting in a trap for the bulls that allowed the market to pull back throughout the remainder of the morning.

The Nasdaq suffered the most on the late morning correction. Although it found support initially at the morning lows around 11:00 ET, a small continuation pattern formed in the indices into 11:15 ET and was followed by another wave of selling into 11:40/12:00. The S&Ps and Dow both came into support at the morning lows at that point, but the Nasdaq was already back to where the morning momentum had slowed the previous day and had even fallen through Wednesday's afternoon lows.

As noon hit, the momentum slowed on the downside. This is a common reversal period for the market and the indices made an attempt to bounce off it. The momentum had not rolled over quite well enough to break the 5 minute 20 period simple moving average, however, and a second test of the lows took place into 12:30 ET. This time the indices had slid down the 5 minute 20 sma and the retest of lows created a stronger reversal pattern into the early afternoon.

While the stronger Dow found support at morning lows at the 15 minute 20 sma, this same moving average acted as resistance for the Nasdaq on its early afternoon rally. It hit at the same time as the 13:00 ET correction period and pushed the Nasdaq into a trading range. The S&Ps and Dow were able to still continue higher without worrying about resistance other than the morning highs. This resistance zone hit shortly before the 14:00 ET correction period, although the indices did not quite test the exact highs. The Nasdaq had begun hugging its 5 minute 20 sma at that time and it fell apart at the same time as selling hit in the other two indices.

This second pullback on the afternoon lasted until about 14:10 ET. The mid-day congestion zone served as support and the market bounced quickly back to the early afternoon highs. Since this created a "V" formation on the 5 minute time frame, those highs again served as resistance, creating another smaller pullback into the 15:00 ET correction period. After being held back all day, the Nasdaq really owned this afternoon breakout. It spiked to hit a move equal to that which had taken place into 13:00 ET, but it didn't stop there.

While the S&Ps and Dow stepped to new highs on small 1 minute bull flags, the Nasdaq based and then broke higher just before the close in the final 15 minutes of trade. It returned to opening price levels. Although not as impressive overall compared to the S&Ps and Dow which made higher highs in the afternoon, this was quite an accomplishment given how much farther it had to move in order to even come close to hitting earlier highs. Unfortunately, the stair-stepping was an issue for the S&P and Dow because it opened the door for a rapid, as opposed to gradual, correction into the close. This made it difficult for any of the indices to hold onto their late day gains.

The S&Ps and Dow closed relatively unchanged on Thursday, while the Nasdaq posted small losses. The S&P 500 ($SPX) ended the day higher by a fraction of a point, up 0.85. It closed at 1,365.56. The Dow Jones Industrial Average ($DJI) gained 1.22 points. It closed at 12620.49. The Nasdaq Composite ($COMPX) lost 8.28 points. It closed at 2,341.83.

Leaders in the Dow included Citigroup (C) (+2.52%), American Express (AXP) (+2.17%), and IBM (+2.17%). Top losers were Pfizer (PFE) (-3.32%), Merck & Co (MRK) (-2.70%), United Technologies (UTX) (-2.53), and Procter & Gamble (PG) (-2.47%). In the Nasdaq, standouts included Altera Corp. (ALTR) (+8.65%) and Level 3 Comm. (LVLT) (+5.16%) on the positive side and Ericsson L M Tel. Co. (ERIC) (-4.5%), Wynn Resorts (WYNN) (-4.06%), Gilead Sciences (GILD) (-3.55%), and EBAY (-3.46%) on the negative side. Additionally, Merrill Lynch (MER) closed higher by 4.4%.

Google (GOOG) announced earnings just after the market close on Thursday and sent the index futures sharply higher. The company says that its first-quarter profit climbed 30% with net income up $4.12/share, surpassing analyst expectations. Its revenue rose 42% in the past year. GOOG itself was trading higher by more than 10% in after-hours trade.

This news alone can easily create continued upside in the market as a whole into Friday morning to help take the indices back to those highs from the 7th that I had mentioned yesterday as resistance. Thursday's highs were price resistance from the 10th. It was a gap closure level in the Nasdaq and highs for the S&Ps and Dow. The NQ went on to hit those highs itself within 15 minutes of the close on GOOG's news. I am a bit leery that the S&Ps and Dow stair-stepped into this level after Wednesday's gap, so while I'm bullish for opening action, I am pretty open as to what the intraday trade with bring and do not have a huge bias for intraday trading on Friday.








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.