The market made quite a swing on Wednesday. I suppose it was "hump" day after all, so the action was really quite fitting if you think of it that way. Although I had said yesterday that I was expecting upside in the morning and then a more rapid decline into the afternoon for Wednesday, the upside was a bit more than I was really looking for the evening before. The indices, however, had received another huge premarket boost with the 8:30 ET consumer price data. As on Tuesday, the premarket economic data led to a strong move higher ahead of the open. The aftermath of the news was more favorable on Wednesday than it had been the day before on the retail and food sales stats.

The Labor Department reported early in the day that the consumer price index rose only slightly in April, up 0.2%, which was significantly lower than expected. Excluding food and energy, the core consumer price index rose 0.1% and inflation was reported weaker than expected as well. Consumer prices are up 3.9% in the past year, with core inflation paced at 2.3%. Although this news was welcome early on, as the day progressed more and more skeptics stepped forward questioning the data and leading to increased speculation that May would see the full blow of it. For the better half of the day, however, the indices did a decent job of holding the bears at bay, although the bulls never fully embraced their upside.

Dow Jones Industrial Average ($DJI)


The market took off strongly higher out of the open following a decent, but not extreme upside gap. When the indices hit resistance though, they did not pull back for another strong bull flag. The extension was already too much and the market tried to correct to that. It did so by rolling over a little bit, but it was able to form a sad bull flag. The S&P 500 then followed with a third bull flag into 11:15 ET off the 5 minute 20 sma. Each move led to a smaller gain than before as the momentum shifted to create a longer corrective move.

The Dow Jones Industrial Average ($DJI) hit an equal move resistance zone early on in the day as compared to the rally into Monday's highs. The S&P 500 ($SPX) and Nasdaq Composite ($COMPX) still had a bit more room to move when the futures contracts were considered. 2033 was the point I was looking at for the Nasdaq to lead to a stronger breakdown. With morning highs of 2030.75, it left the door open for another swing higher into the afternoon.

S&P 500 ($SPX)


The Nasdaq Composite was very sloppy into the afternoon. The momentum had been shifting indices all day as the bulls worked to hold onto the gains, but the Dow created a textbook two-wave continuation pattern on the 5-minute time frame going into the 13:00 ET correction period. At about 13:45 ET the indices had all hit their resistance. The S&Ps at this time were testing prior daily highs, while the Nasdaq EMini hit 2032.75, within a tick of the price I'd been focusing on.

As the market approached those resistance levels, the momentum continued to shift. At 14:30 ET the 5 minute 20 sma support gave way in the Nasdaq. The S&Ps and Dow broke at 15:00 ET with the correction period after hugging the 5 minute 20 sma for nearly an hour to form an Avalanche setup. The name I'd given that particular pattern was apropos. Within very little time the breakdown was building on itself and took on a life of its own. The Nasdaq, which had been the leader in the previous days had the most to give and was back at Tuesday's highs before the Dow and S&Ps even had a chance to really see what was going on. They joined in more diligently from that point onward as all three continued to fall into the close with the Dow taking over.

Nasdaq Composite ($COMPX)


On Wednesday the Dow closed up 66.2 points, or 0.5%, at 12,898.38. Hewlett-Packard (HPQ) (+3.1%) and Verizon Communications (VZ) (+2.2%) were two of the top gainers, while Caterpillar (CAT) (-1.6%) and McDonalds (MCD) (-1.2%) suffered stronger losses. The S&P 500 gained 5.62%, or 0.4%, and closed at 1,408.66. The Nasdaq Composite gained 2.58 points, or 0.1%, and closed at 1,496.7. Freddie Mac (FRE) (+9.2%) and Fannie Mae (FNM) both made headlines after posting smaller than expected first-quarter losses.

Currently prices are holding strong larger intraday time frame resistance on 60- and 120-minute charts. The decline into the close was a substantial correction off those highs, falling 50% back to last week's lows in the Nasdaq. This put it at support into Thursday morning, but given the pace on the selloff, upside corrections are going to be slower overall. Even if there are strong bursts of upside on a 5-minute time frame, the overall pace of any correction off Wednesday's lows or Thursday's morning lows (if they happen to be a bit lower) should be substantially slower.

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.