Good morning! The market had a tough time on Tuesday both before and after the day's Fed meeting. Typically the market tries to move higher at the start of a Fed day, but this time around, probably due to the greater uncertainty surrounding this particular meeting, the indices began to sell off right away into the open. This lasted steadily for the first hour of the day. The consumer confidence index improved for the third straight month, but this had little impact on the market's performance.

The NASDAQ saw the sharpest decline Tuesday morning following the open, but only because it hadn't gapped lower like the S&P500 and Dow Jones Ind. Ave. All three sold off until finally coming into support from Friday's afternoon low. That pivot price support held very well and the market began a gradual correction into the remainder of the morning. Volume declined rapidly while the indices held the zone near morning lows throughout lunch. There was a bit of a change in pace out of 13:30 ET, allowing for a quick pop into 5 minute 200 sma resistance, but this came to a halt very quickly once the Fed news came out.

The Fed's 25 basis point rate hike was widely anticipated. The tone of the accompanying statement, however, led market participants to consider even further increases under Bernanke. This 15th straight rate increase now marks the end of Alan Greenspan's chairmanship of the FOMC and many had been hoping that it also meant the end of the current rate of change.

The initial reaction to the Fed was more extreme than we have seen from recent sessions. It still followed the three-wave pattern, however, of reaction, counter-reaction, and return to the initial trend. The five minute charts give traders a good view of how the second reaction, in this case off lows around 14:20 ET, can often be more extreme than the first. It still held resistance from the morning highs and prior day's price levels very well. In the last half hour of the day the indices swung back around, closing near lows on the Dow. The NASDAQ and S&P500 held up a little better, only returning to pre-Fed levels, but this didn't last long once Google's earnings came out after the bell.... Ouch....

Google has been a market darling ever since its IPO back in the fall of 2004. On the monthly charts it had recently put in an equal move compared to last summer's rally, making it the third strong upward surge on that time frame. It's been due for a greater correction since the beginning of the year because three wave of buying will rarely see continuation moves without first putting in a greater correction to break the 20 week sma support (assuming that is the moving average that has held throughout the trend.) In the past those that had held into GOOG's earnings often came out ahead. When you deal with a stock that is at such extremes, however, the risks increase dramatically. After closing at $432.66 on Monday, GOOG was trading as low as $350 in the after hours market. Yikes! Currently it's settled at about $379.

While the reaction to the Fed alone suggested further downside into Wednesday, I do want to be more cautious on shorting into the open if the gap that is forming this evening holds. Most of the time, the more extreme gaps in the indices will fill throughout the morning. This is a lot different from individual stocks where larger gaps will more often hold.

Remember: 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.

Economic Reports and Events
Feb 01: Consumer Spending for Dec (10:00 am), ISM Index for Jan (10:00 am), Crude Inventories 01/27 (10:30 am), Auto Sales for Jan (12:00 am), Truck sales for Jan (12:00 am)
Feb. 02: Initial Claims 01/28 (8:30 am), Productivity-Prel for Q4 (8:30 am)
Feb. 03: Average Workweek for Jan (8:30 am), Hourly Earnings for Jan (8:30 am), Nonfarm payrolls for Jan (8:30 am), Unemployment Rate for Jan (8:30 am), Mich. Sentiment-Rev. for Jan (9:50 am), Factory Orders for Dec (10:00 am), ISM Services Jan (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 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
Feb. 01: ADS (?), AEP (B), BUD (?), BOBJ (?), CBT (A), CDNS (?), CCK (A), CYTC (A), DVN (B), DRIV (A), DUK (07:00 am ET), EMKR (A), EQR (?), FDG (?), FORM (A), HCA (?), HNT (B), ITG (B), JDSU (A), JLL (?), JKHY (A), KYPH (?), LM (B), MTSN (?), MCRL (A), MNST (B), MUR (A), NWRE (A), PNW (?), PBI (A), PPL (?), PHM (A), REG (A),  SIRF (A), SFN (A), SUN (A), SBUX (A), TSRA (A), BA (B), TWX (B), TRB (B), UGI (?), XEL (B)
Feb. 02: AGN (?), AGU (B), ALA (?), AMZN (?), APA (?), ASN (B), AVP (?), AZN (6:00 AM ET), BKHM (?), CPKI (A), CTL (B), CERN (?), CLX (?), CMCSA (B), CVS (B), EFX (B), ERTS (A), EOG (?), EOP (B), GTW (?), GGC (A), GR (B), HPC (B), IP (B), ISRG (A), ITWO (B), IMGN (4:01 PM ET), ITMN (?), KSU (B), MEDI (B), NEW (B), ONNN(A), PNR (?), PEG (B), RTN (B), ROH (B), RGLD (B), TSG (B), SFNT (?), SCUR (A), SLE (B), STA (B), SPF (A), HOT (B), STXN (A), SSP (B), TSO (B), TMO (B), TXU (?), TYC (B), WCC (B), WEBX (A), WHR (B)
Feb. 03: AXL (?), BEAV (B), KTC (2:00 AM ET), MCO (B), MYG (?), NLS (?), R (B), THQI (B), WFT (?), WEN (?), WY (B)
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.