Good morning! It was a very active session for the market on Wednesday, albeit not a very decisive one. The 60 minute trend channel we were looking at heading into the day had its upper channel lines tested shortly after the open following a slight upside gap. As soon as that resistance hit, however, the weakness we have been seeing jostle for favors over the prior two days took hold. Traders can see the breakdown of the channel support the best on the 15 minute charts of the Dow Jones Ind. mini and NASDAQ 100 EMini charts posted below. Within Wednesday's session, decliners led over advances by 18 to 15 in the NYSE and 16 to 13 in the NASDAQ.

This rapid morning selloff in the market fell right on the heels of the release of the existing home sales report at 10:00 ET. Existing home sales dropped for the third straight month with a 5.7% decline in December. The move to 6.60 million off a revised November sales number of 7.0 million was well under the 6.89 million that had been anticipated.

This initial move out of the 10:00 ET numbers was stronger than I was looking for as a break of the 60 minute trend channel, but the market made up for that by forming a number of strong pivots intraday, creating a more gradual overall trend move on the day to fulfill the expectations I had going into the session. While trading was heavy, the session was dominated by rapid reversal patterns on the 5 and 15 minute charts, creating a lack strong breakout activity. The five minutes charts of the futures show how clean these moves were throughout most of the day. Each low was into a strong support level on the 15 minute charts and was accompanied by increases in volume to show exhaustion while the volume at highs declined right into channel, price, and moving average resistance. The difference in volume at pivot highs versus lows is one of the only major differences between trading pivots as short setups instead of buying opportunities.

As the selling progressed throughout the session, the pace of each downside was longer lasting, yet more gradual than the one that preceded it. This shows a change in pace or momentum that will often favor stronger upside pivots as the market continues to correct from the longer range. This is where a trader can get that 2B setup I talked about yesterday where the market will try for a slightly lower low, trapping new shorts, only to pop back up rather quickly. So far the S&P500 is the only one of the three indices to have established that slightly lower low, although the Dow Jones and NASDAQ both have similar characteristics.

Without a stronger test of a slightly lower low on the 60 minute charts, I still want to be more cautious on the long side simply because this breakdown attempt on Wednesday morning can simply be an early attempt on a breakdown. It can still lead to a longer range on a larger intraday time frame to bring the S&P500 and NASDAQ into 100 day sma support before rounding off more solidly and trying for a better correction off lows.

Sector Highlights from Wednesday:

Gainers included internet stocks ($GIN), networkers ($NWX), drug stocks ($DRG), and banking stocks. They all had strong opens, but essentially fell into a range throughout the afternoon. Homebuilders ($HGX) saw a very difficult time due to Wednesday's housing data, while oil services stocks (OSX), transportation stocks ($TRAN) and utilities ($UTIL) all found themselves moving lower, particularly throughout the morning.

Once again: As this earnings season progresses, be sure to pay closer attention to when earnings are due for any open positions you may have. While there are exceptions, it can be quite dangerous holding a shorter term position into an earnings announcement. Top volume stocks to watch earnings for on Thursday include Amgen Inc. (AMGN - Q4 expecting +76 cents a share), AT&T (T - looking for +44-45 cents a share for Q4), Dow Chemical Co. (DOW - Q4 estimated +1.04/share), Eli Lily (LLY - estimated at +.78/share for Q4), Halliburton Co. (HAL - Q4 expecting +.89/share), Lockheed Martin Corp. (LMT - Q4 looking at +$1.15/share) Microsoft Corp. (MSFT - looking for Q3 earnings of +.33/share), Nokia Corp. (NOK - Q$ expected at +.29/share), and Verizon Comm. (VZ - Q$ at +.64/share)

Economic Reports and Events
Jan 26: Durable Orders for Dec (8:30 am), Initial Claims 01/21 (8:30 am), Help-Wanted Index for Dec (10:00 am)
Jan 27: Chain Deflator-Adv. For Q4 (8:30 am), GDP-Adv. For Q4 (8:30 am), New Home Sales for Dec (10:00 am)
Jan 30: Personal Income for Dec (8:30 am), Personal Spending for Dec (8:30 am)
Jan 31: Employment Cost index for Q4 (8:30 am), Chicago PMI for Jan (10:00 am), Consumer Confidence for Jan (10:00 am), FOMC policy statement (2:15 pm)

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 stock's earnings date 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
Jan 26: AFFX (?), ALK (?), AMGN (08:00 am ET), ANDW (?), T (07:30 am ET), AVID (A), BAX (?), BEBE (?), BDX (B), BOW (B), BRCM (A), BC (B), CAH (B), CAT (B), CLS (?), CELG (?), CPWR (A), ED (?), CY (B), DHR (B), DTAS (A), D (B), DOV (A), DJ (B), EMN (A), LLY (?), ELX (?), EQT (B), FII (4:00pm ET), FDC (?), FDRY (A), BEN (?), GM (B), GNTX (?), GFI (?), HIG (A), HON (B), ICOS (?), NDE (B), INFA (A), IR (B), IDTI (A), IRF (A), JNS (B), KEM (B), KLAC (?), KLIC (B), LSCC (A), LEG (A), LMT (B), LYO (B), MRO (?), MEE (A), MCK (A), MWV (B), MENT (A), ,SCC (?), MSFT (?), MLNM (B), NWL (B), NE (B), NOK (?), ORI (?), OPWV (?), PKTR (A), PLAY (A), POT (?), DGX (B), RBAK (?), COL (B), SNDK (A), SHW (?), SO (B), SYK (A), SU (?), TLAB (B), TEN (B), DOW (B), TSM (08:00 am ET), UIS (B), UPS (B), VSEA (A), VRSN (?), VZ (B), WDC (?)
Jan 27: BDK (B), CVX (B), FPL (?), HAL (?), MAN (B), NUE (?), PG (B), UCBH (?)
Jan 30: ATHR (4:00 pm ET), CHKP (B), CMI (B), EK (B), XOM (?), FISV (A), KFT (A), MAT (B), RSAS (A), SGP (B), SII (B), SYY (?), TSN (B), UNM (A), ZMH (A)
Jan 31: ACE (A), ADPT (?), ASD (B), ARTG (?), CCJ (?), CB (A), CIN (?), CEG (?), CAM (B), COCO (B), CFC (B), CYMI (A), ELN (B), ETR (B), FLEX (A), GOOG (?), HLT (B), ITW (08:00 am ET), RX (B), ISSX (A), JBLU (B), K (B), MRK (B), SEPR (B), SIE (A), SGTL (A), STN (?), SYMC (?), TE (B), ERICY (01:30 am ET), ALL (A), X (?), VLO (?), WYE (?), ZHNE (A)
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

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.