Good day! The market put in quite a ride on Wednesday. The day began with a rather significant gap down at the open. Given that we were in the upper end of a daily trading range, I thought the odds were decent that the prior day's highs would hold. The gap was right into price support in the NASDAQ though at prior day's lows, so it made it likely to see a bit of a correction out of the open. While this correction began rather benignly, around 10:30 ET it began to pick up steam. Then, coming out of a 5 minute pivot low with the 10:45 ET reversal period, the pace really began to increase as a result of Greenspan's Congressional testimony. It wasn't so much what he said that fueled the markets, but rather what he didn't say. He did not express any sentiments regarding interest rates or inflation, which was good news for investors.

After the first strong wave of buying took place out of 11:00 ET, the market paused ever so slightly to catch its breath. In a news driven market, the first correction tends to be buyable. In this case you had to act quickly, however. You can hardly perceive the rest on the SP500 and Dow Jones Ind. Ave. and it's not a lot more visible in the NASDAQ, although I've circled it on the 5 minute charts. This late morning rally took the market not only back to the prior day's highs, but well beyond them, stalling only as the NASDAQ ran into its 50 and 100 day sma resistance at about 11:30 ET.

Any correction following such a monumental move tends to start off a lot more gradually. It makes trading such turnovers as absolute pivots less than ideal. As you can see, Wednesday was no exception. The market actually tried to form a Bull Flag into 13:00 ET, but it was a much higher risk setup given the resistance and the length of the morning rally, which would tend to need to correct into at least the 15 minute 20 sma. The flag, as a result, only managed to make it back into resistance from prior highs intraday and on the 15 minute charts that slower move with lighter volume meant the formation of an Avalanche, which was a lower risk shorting pattern after such a huge upswing. It triggered out of 13:30 ET and the market fell sharply into the SP500 and Dow's 5 minute 200 sma support. Here they based nicely with decreasing volume to form a Bear Flag and put in a third wave of selling on the 5 and 15 minute charts.

As you may recall, after three waves of buying or selling in a trend, where the correction between each wave is fairly comparable, the market then needs to put in a larger correction. This meant either a 2B or a longer trading range with more room to break down again later in the day or into the next. As you can see, the market held the lows and stuck with the trading range scenario, pulling back into the zone of the prior breakdown before coming back down just a bit into the close. This leaves room for a 15 minute triangle to form heading into Thursday with more downside likely. The weekly NASDAQ is also continuing to form an Avalanche and the Dow has a daily 2T trying to kick off by just coming into the prior daily highs at a slower speed than the prior daily drop. CVD, AFFX and ANF all are looking great and trailing stop strategies should be in place.

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.