Good morning! Despite the strong selling already in place coming out of Tuesday's pivot highs and Fed announcement, the downside continued on Wednesday, beginning with a slight gap down into the open. This helped to sustain the pullback off last week's highs, but represented an increase in the downside pace within the daily range as compared to the last two rallies since July. It is going make it more difficult for the market to turn back over and pull into the upper end of the range since when it corrects to this latest bout of selling, it will likely do so at a more gradual pace. The acceleration in volume on Wednesday will help out as well since it shows true selling and panic.

In order to turn around with stronger upside over the next couple of days, we will have to see rounding off at lows on the intraday charts during that time as the market comes into the prior daily lows. By rounding at lows, what I mean is lows breaking by lesser and lesser degrees with a decrease in selling pace compared to buying pace. At the moment, that is looking difficult. Although we did see a bit of a change in pace into the afternoon Wednesday, it was simply not enough to turn the market over. 
 

After the morning gap, the market slowly sold off for the first 45 minutes of the day, triggering a 2B reversal on the 5 minute Dow Jones Ind. Ave. heading into the 10:15 ET reversal period when that index put in an equal move on the 5 minute charts as compared to the last wave of selling the prior afternoon. The pivot was a bit stronger than the move off the 15:00 ET level on Tuesday, but still weaker than the last downside move, making a reversal difficult. As soon as the 15 minute 20 sma on the all sessions charts hit in the futures, the market began to sell off once again. The 11:00 ET reversal period helped to kick it off and the move lasted into the 12:00 ET reversal period.

All in all, I found Wednesday to be a strong technical day in the indices, but a bit more difficult for individual stocks. As a result, most of my focus on the day was on the futures. With the market trying to turn over into the afternoon by selling off at just a little faster than the 10:15 ET upside move, I was looking for a 2B pattern on the 15 minute charts for the early afternoon. This triggered right out of that 12:00 ET reversal period when the trend channel from the 11:00 ET drop broke on the 5 minute charts. Essentially, the exit trigger on that 11:00 pivot decline also set up the buy for the 2B. Once again the upside move was right back into that 15 minute 20 sma on the all sessions charts, which held perfectly going into the 13:30 ET reversal period as the target on the 15 minute 2B.

I was initially looking at more of a change in pace on the 15 minute 2B heading into it, but the upside was not able to pick up, so the resistance was very solid, creating another move back into lows. This was the third wave of selling intraday and hence the odds increased that these third lows would hold into the close. Typically you get a longer correction after a third descent in a trend move before you can see a continuation of the trend. The market simply wouldn't have enough time for that to take place.

You can see this three wave action, followed by a greater correction, on the smaller time frame by just looking at a 1 minute chart from 13:00-14:00 ET. The three waves of selling on that trend move indicated the end of that downside move as the market came into the lower end of the trend channel for the day. It helped lead into a small Reverse Head & Shoulders on the 1-2 minute chart of the NASDAQ going into 14:00 ET to allow for a more rapid move off lows going into the last two hours of the day.

This time around, the 15 minute 20 sma zone had a bit more give to it due to the trend placement and change in pace, making the prior 15 minute highs the more significant resistance level. It still was not enough to end the selling though. The 14:00 ET reversal period held and the market formed a small 2-5 minute Avalanche that dropped the market back into lows for the last reversal period of the day at 15:30 ET for the last setup of the day. You can see that throughout the day, the reversal periods, support and resistance and pace moves helped to guide the market very well throughout the day. In individual stocks though, the back and forth action was enough to keep many of the intraday setups more scalpish unless you were able to get in early and just hang on for the ride.

Despite the attempted change in pace into the afternoon on Wednesday, I think that it's going to be hard to get a larger correction off lows taking pace out of the open on Thursday unless the market gaps down a decent amount into the 100 day sma in the NASDAQ or 200 day sma in the SP500. Typically we won't get more than three days of selling where the 15 minute 20 sma resistance holds, however, before it at least corrects longer intraday. Hence, while my bias into the day is still on the downside, we will still likely see that larger correction intraday before the weekend. Continue to use a great deal of caution on longs as new swing trades at this time.

Updates: Swingtrades: VRTX long from last Monday has support under the 20 day sma. Position trades: HSP and CHRS long have support at the lows of the weekly bases. CHRS stopped out some folks on Tuesday, but is holding the 20 week sma support. I am looking at acquiring NTRS as a position trade buy on upside breakouts from the current range on the weekly chart. HCA was also added to the position trade short watch list this week and has resistance now at $50 with a target of the 20 month sma. 

Economic Reports and Events
Sep. 22: Initial Claims 09/17 (8:30 am), Leading Indicators for Aug. 810:00 am)
Sep. 23: -
Sep. 26: Existing Home Sales for Aug. (10:00 am)
Sep. 27: Consumer Confidence for Sep.. (10:00 am), New Home Sales for Aug. (10:00 am)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Sep. 22: COMS (A), FINL (4:15 pm ET), GIS (B), KBH (B), ORCL (A), PALM (A), RAD (?), TIBX (A)
Sep. 23: -
Sep. 26: JBL (A), WAG (?)
Sep. 27: -

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.