The market continued to face pressure on Wednesday after reversing sharply off Monday's highs. In Tuesday's session the indices had retraced into some larger 60-minute support levels which held prices up somewhat into the close and left a mildly bullish sentiment into Wednesday morning. This sentiment played out very quickly within the first 15 minutes of the session. The Nasdaq Composite ($COMPX) led the opening rally, boosted by news from Intuit (INTU) which beat fiscal third-quarter earnings forecasts. The Nasdaq came close to reclaiming 50% of the losses from the descent on the 15-minute time frame off Monday's highs and into Tuesday's lows.

The Dow Jones Industrial Average ($DJI) did not experience the same level of excitement out of the open and the S&P 500 ($SPX) was also quite sedate. When the 9:45 ET correction period hit all three of the indices turned once again. The 5-minute 20-period simple moving average served as initial support for the S&Ps and Nasdaq, while the Dow found initial support at prior 5 minute lows from Tuesday afternoon. These levels hit shortly after 10:00 ET. A level of congestion along the support zone followed with declining volume. This created a continuation pattern in the form of an Avalanche which triggered early at 10:30 ET.

10:30 ET data regarding crude oil inventories were the primary instigator of the early continuation trigger for the indices on the downside. Crude supplies fell by 5.4 million barrels to 320.4 million last week. Supplies had been climbing for four consecutive weeks and had been expected to continue to do so this past week as well, but suffered due to a substantial decline in imports. Early in the session crude surged to a record high of $132.08 a barrel, eventually breaking though $133/barrel. They had closed on Tuesday at $129.07 a barrel for the June contract. Texas oil and gas executive T. Boone Pickens made headlines predicting that crude oil will hit $150 a barrel.

Dow Jones Industrial Average ($DJI)


After breaking lower with the data, the indices stalled for nearly 15 minutes before continuing lower out of the 10:45 ET correction period to complete the Avalanche breakdown. The second wave of selling took the indices into the 11:00 ET correction period. At that point they had established a little over an equal move as compared to the initial drop and were once again at support levels on a 60-minute time frame. The S&P futures were in the lows zone from the 15th and the Dow futures were coming into support from the lows of the 9th of May. These corresponded to the 5-minute equal move support and 11:00 ET correction period and allowed the market to begin to correct once again off the lows going into noon.

As in Tuesday's trade, momentum shifted on the 5-minute time frames when the indices came into resistance at the 5-minute 20-period simple moving average. The resistance stalled the upside move, but the reaction off the resistance was very mild. Instead the indices slid lower and hugged the 5-minute 20 sma as volume again declined to create another continuation pattern. This time is was a pattern opposite of the Avalanche which I call a Phoenix. Another false start took place around 11:45 ET, but the indices were able to still hold on and broke higher once again between 12:15 and 12:40 ET. The Nasdaq continued to hold onto its lead with strong upside follow through, but the Dow remained trapped under the 15-minute 20 sma and was unable to offer as strong of a move.

S&P 500 ($SPX)


From a daily standpoint, as I mentioned yesterday, the larger bias in the market was in favor of more downside this week. The inability of the Dow to push through resistance easily and the larger downside bias made it very easy for the bears to regain control in the afternoon. This began with the 13:00 ET correction period. The market quickly broke through support from the smaller uptrend channel mid-day. This initial move was modest, but a small Avalanche formation into the 5-minute 20 sma resistance led to a much stronger breakdown.

Nasdaq Composite ($COMPX)


The indices fell sharply into 14:00 ET. They hit support initially around 14:15 ET at some fibonacci support from an extension off the last 15-minute downtrend earlier this week, but the pace was so strong into those levels that the market continued to push lower, albeit at a slower pace. Some rounding off at lows took place into 15:00 ET, taking the market back into the 5-minute 20 sma resistance, but it once again held very well and the market sold off into the final 30 minutes of trade. This late day action left the market at equal move support as compared to the breakdown on Monday and into Tuesday. I think we may see a bit more (downside) into the morning, but the market is due for another correction up off lows on a 30-minute time frame. So, I will be watching out for that correction up off lows at least going into the second half of trade on Thursday.

Wednesday's trade ended with a loss of 227.49 points, or 1.8%, for a close at 12,743 in the Dow Jones Industrial Average. The S&P 500 lost 22.69 points, or 1.6%, and closed at 1,410. The Nasdaq Composite closed at 2,487, down 43.99 points, or 1.8%.

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.