After hitting the daily support on Friday and into Tuesday on this shortened trading week the indices have been trying to find a decent directional bias. Yesterday I showed you a pattern which developed early on in the morning on the 27th. The indices had experienced a similar pullback off highs on a 5-minute time frame as compared to the current daily time frame. The reaction off the support was a slower upside move with a lot of overlap from one day to the next. The action was comparable enough for me to surmise that we would see a similar reaction develop off the daily support. The wild card is the Nasdaq, which was somewhat stronger in recent trade and hence has a better chance to break the prior highs on the daily time frame to trap traders than the rest of the market.

So far the follow-through has been exactly what was expected. Although the market did move higher on Wednesday, trade was choppy and the market overlapped the prices from Tuesday by quite a lot intraday. The session had begun with a slight upside gap into the open. I was expecting highs to hold within 15-30 minutes of the opening bell, but the market was not really able to get going at all out of the open. It did chop around for 15 minutes, though, before turning over to quickly close the minor price gap.

Dow Jones Industrial Average ($DJI)


The upside into the open began at 4:00 am ET, which is a typical premarket correction period. This is when the Tokyo exchange closes. At 8:30 am ET durable goods data spiked the index futures once again. The Commerce Department reported that orders for durable goods fell 0.5% last month. A larger factor behind the decline was a cut back in aircraft orders. Excluding transportation, however, orders climbed 2.5%. Overall the data was not as bad as had been anticipated in April since speculation regarding the impact of soaring oil prices on transportation was quite strong.

After such a large move on Tuesday afternoon without so much as a 5-minute bull flag, however, the indices were not able to easily hold onto the early morning gains. Resistance from last Wednesday and Thursday lows in the S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI) had also hit going into the opening bell. At the same time, last Thursday's opening prices in the Nasdaq Composite ($COMPX) were being tested. After the initial 15 minutes of the day yesterday the pressure gave way to selling.

S&P 500 ($SPX)


The market trended lower throughout the morning on Wednesday. The 5-minute 20-period simple moving average was only strong enough to stall the pullback by a couple of minutes before the indices pressed lower into the 15-minute 20 sma. This created a nice scalp setup coming off the support, but this was still not a very significant correction on a 15-minute time frame. To compare, the pullback on Tuesday morning lasted half the day. Since the continuation on the upside Tuesday afternoon was similar to the move off lows from Friday into Tuesday morning it made it probable that the correction off Wednesday's highs would last for at least the same amount of time.

The morning downside resumed out of the 11:00 ET correction period yesterday. This was almost identical to the action the day before. On Tuesday that continuation took the market into lows at noon. This meant that 12:00 ET would once again be the larger correction period to watch out for. The momentum action on the downside, as well as the bounce, was a bit different yesterday than the day before. This created a smaller bounce at 11:30 ET off the prior lows zone on the 5-minute time frame which created a triangle continuation short into noon. Although not exact, the zone of 12:00 ET again held very well and the market was able to once again turn around into the afternoon.

Nasdaq Composite ($COMPX)


The afternoon action on Wednesday did not have as much in common with the prior day other than that the bias was once again bullish and the action was again very choppy. I was not even convinced that we would see a strong move. After the market had bounced at noon it had based along the 5-minute 20 sma to create a nice Phoenix buy setup into 13:00 ET. The follow through on this move was slower than the initial bounce, so the result was a two-wave correction off lows from 12:10-13:30 ET. This meant a bearish bias into 13:30 ET.

The Dow and S&Ps fell sharply at 13:30 ET. They continued lower into 14:20 ET. By forming only a short base into 14:00 ET and a lesser continuation on the downside into 14:20 ET, however, this meant that another two-wave formation had taken place that reversed the prior one. The market popped sharply out of 14:30 ET, but still took a bit of time to gain strength. Finally they broke higher at 15:30 ET into the close.

Thanks to the late day enthusiasm the indices managed to post gains on the day. The Dow closed higher by 45.68 points, or 0.4%, at 12,594.03. Only 17 of its 30 components came out ahead though. AIG led the decliners with a 4.7% loss after announcing that they may need to raise even more capital to help bail it out of trouble. The S&P 500 rose 5.49 points, or 0.4% as well, to close at 1,390.84. It was led by materials and energy. Financials suffered the most. The Nasdaq Comp. climbed 5.46 points, or 0.2%, and closed at 2,486.7.

As the week progresses I am still looking back to Tuesday's morning action as guidance. This points to continued upside this week, but with greater overlap from day to day in price action. The opening price level from the 20th is going to be strong resistance in the S&Ps and Dow, but that is if they even manage to gain enough strength to get there. I am looking at more of the 12,850 zone for Dow resistance, while those 20th highs would place it in the 13,000 level. 2540-2560 will be Nasdaq Composite resistance on the daily time frame. The momentum over the next couple of days on the upside will help provide us with a better estimate of the highs. Stronger momentum will make it easier to push the upper envelope of resistance, whereas greater overlap and lighter volume and chop will make it more difficult.

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.