The Dow Jones Industrial Average ($DJI) closed higher by 29.88 points, or 0.3%, on Wednesday. It closed at 11,632.38 with 21 of its 30 index components higher on the day. American International (AIG) led the gainers, up 7% on the day. Boeing (BA) weighed somewhat against the gainers, dropping 3.7% following a reported 19% decline in its quarterly profit.

The S&P 500 ($SPX) rose 5.19 points on Wednesday, or 0.4%, and closed at 1,282.18. Consumer discretionary fronted the gains, up 2.8%, with financials coming in second with a 2.4% gain. It is deemed likely that President Bush will sign the pending housing legislation which has helped boost the financials. Fannie Mae (FNM) rose 11.9%, while Freddie Mac (FRE) gained 11.3%. Energy shares led the downside, falling 4.9%, with utilities down 2%.

Crude oil fell nearly $4 to settle at $124.44 a barrel on the New York Mercantile Exchange, off more than 15% since its high of $147.27 on July 11. It had recovered mid-day after breaking to new intraday lows on the inventories data, which fell less than expected. This reversal formed a nice continuation pattern in the form of a Phoenix in oil and many of the stocks which trade in tandem to crude, including energy. The recovery reversed in the second half of the session at about 12:30 ET, however, and prices ended at lows. Airlines continued to soar as oil fell. The benchmark index has gained nearly 80% since July 15. The retail price of gasoline, however, remains over $4 a gallon at $4.042 on Wednesday. It had hit highs of $4.114 on July 17.

The Nasdaq Composite ($COMPX) climbed 21.92 points, or 1%, and closed at 2,325.88, easily surpassing the gains in the other two indices. Amazon (AMZN) rose 3.8% on the day ahead of earnings due out after the bell, while Yahoo Inc. (YHOO) fell 4.7% after it failed to meet earnings expectations. Shares of AMZN traded higher after-hours after the company reported that second-quarter profit doubled since a year ago to 37 cents a share with a 41% jump in revenue. This was much stronger than the 26 cents per share that had been anticipated. It also guided higher for the third quarter from 29% for the same period last year to 36% this year.

Dow Jones Industrial Average ($DJI)


The session began on Wednesday relatively unchanged from the prior day's close. The indices then congestion for most of the initial 30 minutes of the day, but the Nasdaq peaked its head higher to begin to display greater relative strength very quickly out of the opening bell. It continued to gain momentum over the course of the next hour with the S&Ps and Dow tagging along from about 10:15 ET onward. All three of the major indices continued to rally until striking price resistance on the daily time frame. In the Nasdaq this mean last week's highs, while in the S&Ps it meant the highs from the beginning of July. The Dow pushed ahead even further to test the lows from June 24. Prices peaking just ahead of the 10:45 ET correction period.

The market's reversal was nearly as sharp as its rally. In fact, the initial downside momentum was just as strong heading into 11:00 ET. This correction period held, however, as the indices hit their 5-minute 20-period simple moving averages for intraday price support. They congested along this support on declining volume to form a 5-minute Avalanche short pattern which took the indices down to their opening price levels and their 15-minute 20-period simple moving averages. When an Avalanche hugs its 5-minute 20 sma, the 15-minute 20 sma is a typical target level for the breakdown.

S&P 500 ($SPX)


After such strong upside and reversal moves intraday, the market was left rather uncertain of what to do with itself for the remainder of the session. Prices hugged the 15-minute 20 sma, but instead of triggering an Avalanche on this larger time frame the momentum failed to confirm a shift and continued to hug the support into the close. Part of this was due to the larger time frames at play. The 60-minute continuation which triggered the prior afternoon still has room to move before it hits larger resistance and the two-wave correction off highs on a 5 and 15-minute time frame created a bullish pattern into the afternoon, despite the lack of follow-through.

Nasdaq Composite ($COMPX)


We are looking at prices currently in the middle of a congestion zone going into Thursday's session. Within that congestion itself there is a bearish bias in terms of the pace of action since there is only one low on a 30-minute time frame. The market is attempting to pull up into a second high. If it can make a second low on that time frame with lighter volume and a more gradual pace than Wednesday's intraday pullback, then it will allow the indices to break through this week's highs ahead of the weekend. 2400 is the next main resistance level in the Nasdaq Composite, while 11,800 is the Dow's next resistance zone.

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.