Good morning! After a strong late day reversal on Tuesday, the selloff continued into the next morning when the market based out of the open on Wednesday and then broke lower following the 10:00 economic data. The Institute for Supply Management's nonmanufacturing index fell sharper than expected to 53.3 from off last month's 65% level. This is the lowest number since the spring of 2003. New orders dropped to 56.6% off 65.8% and the price index rose to 81.4% from 67.1%. This created an exhaustion move intraday as volume spiked and the market soon began to correct off lows going into the latter half of the morning.

This market fell into a narrow range intraday as it came into the 5 minute 20 sma resistance zone. This formed a 5 minute bear flag that gave way into noon. The pace was finally more gradual on this descent and the prior lows only broke by a small amount in both the NASDAQ Composite and Dow Jones Industrial Average, forming a variation of a double bottom called a 2B. It triggered a reversal pattern into the early afternoon to put in a larger 15 minute correction to the selling, taking the market slightly higher into the 15 minute 20 sma resistance and 200 sma in the NASDAQ.

Throughout the correction, the market held the zone of the day's lows. The retracement was only a small percent of the overall drop from Tuesday highs and, while higher than the recent mid-day action, volume declined. This showed a lack of conviction on the part of the bulls and helped lead the way for a continuation to the selling as the afternoon progressed. The Dow put in three small waves of buying during the mid-day correction, extending that intraday uptrend. The SP500 and NASDAQ, on the other hand, both formed small 5 minute double tops intraday just before 14:30 ET to start the reversal back to lows. This was followed by a small base on the 1-2 minute charts which then broke lower. The market continued this decline into the close.

Trend moves such as this intraday tend to last an average of 2 1/2 days and then they need to put in a larger intraday correction, breaking at least the 15 minute 20 sma zone. With the current intraday descent testing those limits on Thursday, we should start to see a slow down intraday with potential for a stronger late day correction. I would use a lot of caution on new longs overall though. The pace on this selling is so strong that the upside will typically be a lot more gradual unless we see rounded lows intraday where the pace and extension of new lows declines.

Updates: Swingtrades: UFPI long from last Monday hit trialing stops under the 20 day sma. Position trades: HSP has support at the lows of the weekly bases. CHRS stop hit. I am looking at acquiring NTRS as a position trade buy. It has bounced off the 20 week sma and now needs a daily setup to form. HCA as a position trade short from 9/20 hit trailing stops for a swing, but a larger position trade target is in the $43 zone.

Economic Reports and Events
Oct 06: Initial Claims 10/01 (8:30 am)
Oct 07:  Average Workweek for Sep (8:30 am), Hourly Earnings for Sep (8:30 am), Nonfarm Payrolls for Sep (8:30 am), Unemployment Rate for Sep (8:30 am), Wholesale Inventories for Aug (10:00 am), Consumer Credit for Aug (3:00 pm)
Oct 10: -
Oct 11: FOMC Minutes (2:00pm)

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
Oct 06: CAN (A), ATYT (B), STZ (A), COST (?), MAR (B)
Oct 07: -
Oct 10: AA (A), DNA (A), NGAS (?), PKX (B)
Oct 11: AAPL (5:00 pm ET), GCI (B), LPL (?)

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.