Good day! After the failed breakout attempt Wednesday afternoon, the market continued its downward slide into the open on Thursday. The gap was quite extreme for the indices and closed the upside gap from the day before. Gaps of this size in the overall market have a very difficult time sustaining themselves and 15 minute 200 sma support in the S&P 500 and Dow Jones Ind. Ave., along with the Wednesday's gap support, led to an immediate reversal of the premarket downtrend. Throughout the morning the indices pushed higher, putting in three waves of buying on the 2 minute charts to close the morning gap between 10:30 and 11:00 ET.

Given that the corrective periods between each of the waves of buying were comparable on the Dow and S&Ps, the market will then attempt to create a larger correction to the trend. This was accomplished as the market began to pull back off the 15 minute 20 sma resistance coming out of the 11:00 ET reversal period. Volume was light on this correction, indicating a lack of strong selling. The market attempted to base in the middle of the day's range out off 11:30 ET, but the upside pace slowly increased until the cup of what would become a cup with handle formation on the 5 minute charts was established by 12:30 ET. The handle took another 30 minutes and then broke higher out of 13:00 ET. This is one of the two most likely times of the day for a late day breakout or strong market reversal to begin. The other is 14:00 ET.

The buying in the market picked up dramatically into the early afternoon, quickly taking the Dow and Nasdaq past Wednesday's highs. I had been looking for these levels to serve as stronger resistance heading into the day, but the momentum has remained strong enough to continue the uptrend on the daily charts, yet weak enough to still be susceptible to strong intraday reversals. The S&P 500 actually did hold the zone of the prior day's highs, but it took the highs of the week to halt the Nasdaq.

Following the strong breakout mid-day, the market pace began to wane as it came into the larger time frame resistance zones. The indices continued to attempt higher highs, but each of the following two moves was weaker than the one that preceded it and the highs broke by lesser degrees. The high at the 15:00 ET reversal period was not even strong enough in the Nasdaq to make a new high on the day. In the Dow and S&P 500 this was only accomplished by a tick or two and the three indices formed solid 5 minute reversal patterns. This pivot gained strength after basing slightly along the 5 minute 20 sma to allow for the pace to turn over even more in favor of the bears heading into the close.

The day ended at the 15 minute 20 sma support in the indices with only a slight gain in the weaker S&P 500 of 1.72 points (0.1%). The Dow faired a little better on the day as a whole, rising 42.66 points (0.4%). The Nasdaq, while unable to break the week's highs, had the largest percentage gain on the day, standing at 0.7% (13.53 points). Retailers were among the strongest sectors on Thursday. JWN, ANF and GES are examples of those that established strong trends early in the session and held on throughout the day.

This week we haven't seen as much follow through on the big gaps in the morning, but instead are seeing more of the intraday movers beginning to pick up momentum while within the prior day's range. This doesn't allow for as easy of a chance to detect many of the stronger stocks of the day right away and has made me a bit less active in stocks than I was expecting to be. I don't think at this point though that we will see much change in this season's trend. The Fed next Tuesday might shake things up a bit more, but overall there isn't anything else just yet to suggest a break in the type of trading we have seen the last two weeks. A lot of the early morning focus for Friday will be the employment data, which can have a strong impact on those holding overnight. These are due out at 8:30 am ET.

Economic Reports and Events
Aug. 4: Average Workweek, Hourly Earnings, Nonfarm Payrolls and Unemployment Rate for July (8:30 am)
Aug. 7: Consumer Credit for June (3:00 pm)
Aug. 8: Productivity-Prel Q2 (8:30 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.
Aug. 4: AAUK, GT, KGC, MXIM, MHS, NU, OXY, OMG, POM, TTI, TRI
Aug. 7: AMT, ACF, AHS, ANH, AINV, AXS, BBD, EAGL, EP, ENCY, ENTG, FLR, FTO, HMY, MVL, MDR, MYOG, OSIP, PCLN, RTEC, SONS, YSI, URI
Aug. 8: AFR, BMC, CELL, CVC, CMX, CRL, CHRD, CSCO, CCU, CMLS, DNDN, DIGE, DCEL, HLTH, ETR, FMT, GMST, GGP, GIGM, GSS, KOSP, LAMR, LNC, MGAM, NWS, NUAN, RL, PVX, QSFT, RRI, SAPE, SLE, STX, TEVA, DTV, UMC, WPI, WNR
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.