Although the action on Wednesday was not as extreme as Tuesday, the indices had a lot in common on both of these days. The morning action was to the upside, boosted by positive news on the data front. When this euphoria wore off over noon the market turned, heading lower throughout most of the afternoon and then bouncing back into the close. The momentum of the repetition, however, was not the same. The market had a stronger upside in the morning and weaker downside action into the afternoon.

Ahead of the open on Wednesday the ADP employment report showed a 40,000 increase in jobs in the private sectory in May with about 20,000 in the government. Nonfarm payrolls rose by about 60,000 in May. Economists had anticipated 50,000 decline. In another report, the Labor Department revised the productivity of U.S. nonfarm businessses higher for the first quarter from 2.3% last month to a 2.6% annual rate in the first quarter.

At 10:00 ET the Institute for Support Management released its May data for its composite index of non-manufacturing businesses. The index slipped from 52% in April to 51.7% in May. Since this was still above 50%, however, it indicates growth for the second month in a row. In the three months prior the index had fallen short of this key level and was in a contraction phase. The news from this report did not cause a strong immediate response in the market, but the gains solidified within the 30 minutes that followed and the congestion which began ahead of the data finally broke to new highs around 10:20 ET.

Dow Jones Industrial Average ($DJI)


The indices struggled with confidence until 10:35 ET. At that point a small continuation pattern that had been forming broke higher. The opening momentum returned and the indices moved steadily higher into the 11:15 ET correction period where they starting running into larger time frame resistance levels. The 5-minute 200-period simple moving averages were hitting in both the S&Ps and Dow and the Nasdaq had hit the prior day's highs. Meanwhile the S&Ps and Dow were also testing price resistance from Tuesday in the early afternoon where the market had congested before falling sharply lower. This led to an initial reversal pattern into 11:30 ET.

The market moved slowly lower into noon where the 5-minute 20 sma zone served as support. Volume was light on the pullback, creating what appeared to be a bull flag other than the fact that the intraday trend was very extended with equal move resistance on the 15-minute charts hit in both the S&Ps and Dow. The market was simply at too much resistance to sustain a decent move off the 5-minute support. My focus by this time had shifted lower once again. Throughout the morning the stocks I had traded had been shorts in PBR and MTL, but up until 11:15 ET I had been bullish in the indices. Even though the market made an attempt to move strongly again off the 5-minute 20 sma, the Nasdaq only broke by a hair to create a bull trap I call a 2T (2-top) where the second high is slightly higher than the first at a strong resistance level.

S&P 500 ($SPX)


Although momentum was on the strong side off the 20 sma, it lacked volume to confirm the move. The momentum was thus able to shift into the early afternoon. Volume picked up when the 5-minute 20 sma broke lower. It was not much in the Nasdaq, but was stronger than the upside in the S&Ps and Dow. The indices found support with the 13:00 ET correction period at the breakout level from the highs of the 10:30 range in the S&Ps and Dow. The reaction off this support was again on light volume. The S&Ps and Dow hugged their 15-minute 20 period simple moving averages as they crept higher, creating Avalanche setups on this time frame that triggered into the 14:00 ET correction period.

The market moved very well coming off this second wave of selling on the 5-minute time frames. Support hit within 20 minutes when the S&Ps hit support from around 10:15 ET and the Dow hit its morning lows. at about 14:15 ET. The third wave in the trend came off the 5-minute 20 sma at about 14:45 and took the market lower into the 15:00 ET correction period. Although the corrections between each of the waves of selling were not comparable in terms of how long they took to form, the market was still able to establish a larger correction off the lows. The 5-minute 20 sma had hit as resistance a final time into 15:30 ET and I did scalp this move, but the pullback was only a fraction of the prior upside move before the 5-minute 20 sma broke higher into the close.

Nasdaq Composite ($COMPX)


Due to the morning rally and late day reversal, the Dow Jones Ind. Ave. ($DJI) only lost 12.37 points on Wednesday to close at 12,390.48. The S&P 500 ($SPX) lost 0.45 point to close at 1377.2. The Nasdaq Composite ($COMPX) rose 22.66 points and closed at 2503.1. The index futures held the late-day reversal and continued higher into the early hours of trading on Thursday. This leaves the market looking bullish into Thursday morning. I am looking for the indices to test the 10- and 20-day sma resistance levels before again stepping lower. The Nasdaq has opened the door for another slightly higher high on the daily time frame.

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.