Good morning! The market took quite a nose-dive on Thursday, well exceeding my daytrading bias for the downside. Wowzee! It was the largest one day drop in about three months with each of the three major indices putting in strong downtrend days, opening near highs and closing near lows, with little upside in between. The Dow Jones Industrial Average ($INDU) lost 141.92 points on the day, closing at 11,500.73. The S&P 500 ($SPX) fell 16.93 points to 1,305.92. The Nasdaq Composite shed 48.04 points, ending the day at 2,272.70. All in all, not a pleasant experience for the bulls!

After opening pretty much in the zone of Wednesday's closing prices, the market began to sell off immediately in the morning. This initial wave of downside lasted until 10:00 ET when the market corrected for about 30 minutes, forming a bear flag on the 5 minute charts. It triggered and led to new lows even before reaching the 5 minute 20 sma resistance. It then repeated the same action with a measured move to new intraday lows followed by another 30 minute correction into the new downtrend channel and a third decline into lunch.

One thing I dislike about trend days like this is that unless you happen to be swing trading and just riding the move, or get in early on from a 15 minute setup or such, the market behaves differently than it typically does. Corrections are briefer and follow-through in the direction of the trend is more rapid. Many times if you are looking for flags on the 5 or 15 minute charts for continuation patterns you are simply out of luck.

In other words, what would normally be more dangerous under the majority of market conditions become the only way to get on board on a trend day. The exception is when you have a steady trend morning that lasts until around 11:00 ET and then a base over noon and a breakdown in the direction of the trend in the afternoon. Thursday was not that type of trend day, however, and I ended up just sitting on the sidelines once the early morning moves were in.

Once any trend moves put in three measured waves of selling, the odds are higher for the market to try to create a much larger correction on the 15 minute charts, making subsequent moves in the direction of the trend more dangerous without an obvious correction on a larger time frame. On Thursday the Nasdaq complied readily with this bias, falling into a trading range from around 11:30 ET on into the latter half of the afternoon. The S&P 500 and Dow Jones Ind. Ave. had a harder time with this concept, but corrected in their own manner. Both slowed their descents and rounded off at lows into noon. In the Dow the 15 minute 200 simple moving average helped, serving as support. There was no change in upside pace off support levels, however, to warrant any strong price correction.

Unfortunately, due to the extreme morning and more rounded action on the S&P500 and Dow, even though the Nasdaq formed a great 15 minute short pattern into its 15 minute 20 sma, it was unable to put in more than a brief decline on the 5 minute charts. Overall, the morning move left the market in a bit of a wasteland. The bears began to fear they were too late to climb on the train heading south and the bulls were too scared that they might get ran over trying to jump across the tracks to the northbound station. I sat in the terminal and waved... Not very exciting, but a whole lot safer! =) Eventually the indices hit upon daily support at the Nasdaq's 200 day sma, the Dow's 10 day sma and prior daily lows in the S&P 500 and the support held for the remaining 30 minutes of the session.

I am only going to be in the office for about the first 90 minutes to 2 hours of the day on Friday, but often a day like Thursday will see a bit of reprieve the next morning. Usually the day after a strong trend move like this will be a great one for trading intraday pivots. Since this is the first downside day like this following a larger uptrend intraday in the Dow, however, it will be easier for the sellers to try to push things further south into next week. I would actually expect the Nasdaq to succumb to less selling pressure in such a case, because it has already shown a lot of downside and hence will become more easily exhausted and harder to keep pushing than the Dow.

Economic Reports and Events
May 12: Export Prices ex-ag. for Apr (8:30 am), Import Prices ex-oil for Apr (8:30 am), Trade Balance for Mar (8:30 am), Mich. Sentiment-Prel. for May (9:50 am
May 15: -
May 16: Building Permits, Core PPI, Housing Starts, and PPI for April (8:30 am), Capacity Utilization and Industrial Production for April (9:15 am)
May 17: Core CPI and CPI for April (8:30 am), Crude Inventories 5/12 (10:30 am(
May 18: Initial Claims 5/13 (8:30 am), Leading Indicators for April (10:00 am), Philadelphia Fed for May (12:00 pm)
May 19: -

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
May 12: DRS (B), PBR (?)
May 15: A (A), GG (A), PRGX (?), TGT (?), VAL (?)
May 16: ANF (A), AEOS (B), AMAT (?), CPWR (A), DE (B), HPQ (?), HD (B), JTXX (A), NTES (A), PLAB (A), REDF (B), SKS (8:00 am), APLA (B), WMT (B)
May 17: ACXM (?), BEAS (?), FL (?). GYMB (?), HOTT (?), INTU (A), MW (A), PETM (A), ROST (B), CRM (?), SNDA (A), SNPS (A), V (?), ZLC (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.