The indices closed unanimously higher on Thursday, but it was really the Nasdaq Composite ($COMPX) that led the way. The Dow Jones Industrial Average ($DJI) rose 34.03 points, or 0.3%, to close at 12,063.09. American Insurance Group (AIG) made a strong recovery, up 4.9% after Citigroup upgraded it to a buy. The S&P 500 climbed 5.02 points, or 0.4%, and closed at 1,342.82 with information technology leading the gainers and energy on the losing end. The Nasdaq Composite vastly outperformed both of the other indices, rising 32.25 points, or 1.3%, to close at 2,462.07.

Dow Jones Industrial Average ($DJI)


Although the market closed higher on Thursday, it didn't begin the day that way. Heading into the session I had been hoping to see more of a trading range since this would have confirmed the 30-minute reverse cup with handle that was forming in the Nasdaq. Instead the indices fell to a new lower low on the 15-minute time frames. In the S&Ps and Dow this marked the third low since Wednesday morning and created a momentum reversal pattern that triggered coming out of the 10:15 ET correction period when the two indices pulled up off their lower trend channel support on the third low.

The upside was decent in terms of pace and was similar to the earlier selling. This was a continuation of the momentum trend from the prior day. It also helped hold the indices in a range for a longer period of time. The indices fell back off morning highs at the 11:00 ET correction period. The S&Ps and Dow both fell back into the zone from the morning lows, but it was here that the Nasdaq pulled ahead. It only retraced about half of its gains before it turned higher once again.

S&P 500 ($SPX)


The momentum in the market really began to shift into afternoon trading. Although the S&Ps and Dow still held earlier resistance at 12:30, the Nasdaq had broken strongly to new intraday highs and closed the gap from the prior day. This price resistance hit at 12:30 as well at the same time as the S&Ps and Dow were hitting the morning highs for the third time.

A small short pattern triggered at that point and pulled the indices back to their 5-minute 20-period simple moving averages. In the S&Ps and Dow this could have been a bull flag except that ideally the market needed more time to correct, so instead of bouncing strongly off the support it hugged it instead, creating a 5-minute Avalanche short pattern shortly after 13:30 ET. This took it into the 14:00 ET correction period to complete a two-wave pullback on the 5-minute time frame, which is also a strong buy setup.

Nasdaq Composite ($COMPX)


The market moved strongly higher out of the 14:00 ET lows. The Nasdaq pushed into price resistance from afternoon highs on Tuesday, while the S&Ps and Dow moved steadily into intraday highs on Wednesday. These hit around 14:45 ET and slowed the upside, although the rally itself continued at a slower pace with a slightly higher high into the 15:00 ET correction period before pulling back very gradually into the close.

I think that we have room on Friday or into Monday to come back down into the week's lows once more before they pull higher and can easily form a lower low. It is not uncommon to see such a retest with the pattern that has formed on the 30-minute time frames in the S&Ps and Dow. In the larger scheme, however, it is still a very bullish setup and this is going to make it easier to attempt another recovery on the daily time frame next week. For this to happen I want the market to react very swiftly off any new low on the 30-minute time frame. If that doesn't happen with more of a "V" type of low as opposed to a slower reaction with more of a tilted "L" then the market can more easily push lower before it manages to correct enough to test the 20-day sma again. Keep in mind that the larger weekly time frames are still bearish.

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.