Good morning! Wednesday's session was a very choppy one following Tuesday's Fed meeting, the State of the Union address and Google's (GOOG) negative earnings reaction. The NASDAQ opened sharply lower on this news, but as mentioned yesterday, extreme gaps like this have a more difficult time holding in the indices themselves. Instead they tend to fill throughout the morning and this was the case on Wednesday as well.

While volume was typical in yesterday's session, the market experienced a great deal of overlap in prices throughout the day. After opening into 15 minute 200 sma support in the NASDAQ and Tuesday's afternoon lows in the Dow Jones Ind. Ave. and S&P500, the market held its breath. It exhaled a sigh of relief at the 10:00 economic numbers, despite how mixed they were.

The ISM index fell more than expected to 54.8% in January, down from 55.6% in December and under the 55.4% that had been anticipated. U.S. construction spending, however, strongly surpassed the 0.2% gain economists had been looking for, increasing 1% in December. The result was a strong surge higher in the market, closing the gap in the NASDAQ and taking the NASDAQ and S&P500 into their 5 minute 200 sma resistance levels intraday. The stronger Dow hit resistance at the same time, but it managed to make it all the way back to the prior day's highs.

The market slowed down a great deal over noon. A decent pullback from the morning resistance levels pushed the indices into a larger trading range on the 15 minute charts. That range narrowed into the early afternoon, breaking down out of the 13:00 ET reversal period. The pace on the move lower and the volume on it both suggested that there was not yet a lot of conviction to the selling.

With a measured move back up into the mid-day resistance, I figured we would either see a retest of morning lows or a continuation of the range into the close. Although the indices began to try to correct once more off highs, when the 15:00 ET reversal period hit there just wasn't enough action to push the market back under the 5 minute 20 sma. Instead the Dow was able to break higher on the day, putting in a strong upside move into the close. The NASDAQ and S&P500 were less enthusiastic and held the day's range. Nevertheless, they still managed to end the session near the day's highs.

In Wednesday's session, networkers ($NWX +1.8%), computer hardware companies ($GHA +1.1%), and pharmaceutical stocks ($DRG +0.8%) outperformed the rest of the market. Airline stocks (following JetBlue's disappointing earnings) ($XAL), retailers ($RLX), and homebuilders ($HGX) all came under pressure.

I am expecting trading to remain more active going into the remainder of the week as the earnings season continues, but that it will also remain on the choppy side. Initial claims numbers give the market something to move on in the morning, but a slew of economic numbers due out Friday morning are likely to hold things in.

So far the action this year has been in line with what we were looking at coming back from Christmas. The premature breakout in the indices did indeed retrace back to the December's range and now the market is reacting to the support that hit on the 20th and 23rd of last month. Due to the sharp drop that Friday, the market has taken its time and has been forming a triangle with the action so far this year. The highs from January will serve as resistance and the range is likely to narrow, particularly in the Dow, before breaking. This could easily take several weeks to develop and the NASDAQ still runs the higher risk of trying for a test of its 100 day sma support before it attempts new highs.

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. 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)
Feb. 06: -
Feb. 07: Consumer Credit for Dec (3:00 pm)
Feb. 08: Crude Inventories 02/03 (10:30 am)
Feb. 09: Initial Claims 02/04 (8:30 am), Wholesale Inventories for Dec (10:00 am)
Feb. 10: Trade Balance for Dec (8:30 am), Treasury Budget for Jan (2:00 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
Feb. 02: AGN (?), AGU (B), ALA (?), AMZN (?), APA (?), APCC (A), 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), LAVA (A), LSTR (B), MAG (B), MEDI (B), MFLX (A), MYL (B), TUNE (A), NEW (B), ONNN(A), OSK (B), PNR (?), PEG (B), PRGO (B), PDC (B), POWI (A), RACK (?), RSYS (A), RTN (B), ROH (B), RGLD (B), TSG (B), SFNT (?), SCUR (A), SLE (B), SNA (B), STA (B), SPF (A), HOT (B), STXN (A), SSP (B), TSO (B), TMO (B), TXU (?), TYC (B), TZOO (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)
Feb. 06: ATVI (A), APC (A), ANAD (B), CNET (A), DIOD (A), FLS (B), FMC (A), GDI (A), HAS (B), HEW (B), HUM (05:00 am ET), IPS (B), XXIA (A), JP (A), JCOM (?), LPNT (A), LPX (?), NBR (A), NSR (B), PPS (A), GOLD (2:00 AM ET), PYX (A), RCII (A), RSG (A), RYAAY (2:00 AM ET), SPG (B), TIN (B), PFG (A), UDR (A), DIS (?), YUM (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.