After several attempts to pull higher off support on a 60-minute time frame, the indices once again fell back on Wednesday. This reversal meant failure for the larger momentum reversal we had been tracking since the beginning of last week. I was out of the office most of the day and missed all of the excitement, but it was not a pretty sight if you were a bull unwilling to shake off that bias for the time being.

The action on Wednesday was very comparable to the reversal that the market experienced on Monday. Despite strength heading into the open, the indices fell into a trading range throughout the morning. Within this range the bias began to shift. Each upside move managed to climb to a lesser degree than the prior one and eventually gave way to another strong afternoon breakdown.

Unlike Monday, the first move out of the gate on Wednesday was to the downside. It began quickly, but slowed at support at 10:00 am ET when the Dow Jones Industrial Average ($DJI) and Nasdaq Composite ($COMPX) came into the mid-day highs from the day before. Ideally for the bulls, the market would have bounced quickly off this support to test the morning highs. The indices fell a bit short of this retest, however, and then pulled back a second time into the 10:45 ET correction period. While this correction period held, the upside out of the support zone was not as substantial as the initial intraday bounce and the market was still unable to test the earlier highs. This meant that even though the pace on the second move higher was itself strong, the momentum was weakening since the indices could not sustain the move for as long.

This occurred for a third time out of 11:15 ET. The indices came into the zone of the earlier highs, but by this point that price level was now a very strong resistance level and the result was a double top on the 15-minute time frame since the three attempts to move higher created a larger momentum shift and the beginning of a potential reversal pattern.

Dow Jones Industrial Average ($DJI)


The market slipped lower into noon. Even though the pace was not exceptional on this pullback on a 5-minute time frame, the overall pace on the 15-minute time frame was now stronger on the downside than the upside. The shift confirmed into 12:30 ET when a light volume attempt at a rally resulted in a low-level trading range intraday on a 5-minute time frame. It triggered a larger breakdown out of 12:30 ET. All three of the major indices broke through their 15-minute 20-period simple moving averages with this smaller collapse.

The 15-minute bias was now negative. The downside off the late morning highs was now on the strong side, which opened things up for the possibility that the market would again fall into a larger range bias on a 30-60 minute time frame. When the market failed to bounce quickly off support at 13:00 ET, that bias was legitimized. The 5 and 15-minute 20-period simple moving averages held and the market rolled over around 14:00 ET.

S&P 500 ($SPX)


At the 15:00 ET correction period both the Dow and Nasdaq were back to testing Tuesday's afternoon lows. There was not a strong volume surge at this test of support to indicate exhaustion. The support held for about 30 minutes, but volume dropped as the market congested tightly along the day's lows. The swiftest move of the session followed as the support gave way to continued downside into the closing bell. All three of the indices had returned to the lower end of the 60-minute price channel.

Officially in bear market territory, the Dow closed lower by 236.77 points, or 2.1%, on Wednesday at 11,147.44. American Express (AXP) lost 5.7%, while Intel Corp. (INTC) dropped 5.3%. Financials were again among the hardest hit, down 5.8% as a whole, after a strong recovery attempt on Tuesday. The S&P 500 fell 29.01 points, or 2.3%, to close at 1,244.68. Freddie Mac (FRE) and Fannie Mae (FNM) were both hit hard once again. FRE fell 23.8%, while FNM lost 13.1%. Utilities was the sole advancing sector in the S&Ps, up a fraction with a gain of 0.85. The Nasdaq Composite lost 59.55 points, or 2.6%. It closed at 2,234.89. Cisco (CSCO) was a major loser in that index, down 5.7%.

The market bias is now favoring another lower low on the 60-minute time frame. It is not enough to suggest a strong break, however, so I am a bit hesitant to commit fully. We have not seen a significant shift in momentum on those larger time frames for a more extensive break. It could be more of a trap that then reverses again into next week. Since we do have a series of slightly lower lows, the risk is higher than a strong flush lower can actually reverse again quite quickly at this point, so that is something else that I am keeping in mind.

Nasdaq Composite ($COMPX)


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.