Good day! The market kicked off on a bearish note on Wednesday. The Labor Department stated that unit labor costs increased 4.9% on an annualized basis for the second quarter, strongly surpassing estimated of 4.2%. Revised first quarter data showed a whopping increase of 9.0% annualized with a 5% increase over the past year on unit labor costs. This marks the fastest rate of change since 1990 and bodes ill for interest rates. Productivity increased 1.6% annualized in the second quarter, up from 1.1% a month ago. The concern once again becomes focused on inflation and whether or not it's being kept under control. This data suggests that it is going to remain a threat and can lead to another rate increase at the next Fed meeting since wage inflation is heavily weighed for setting monetary policy by the Fed.

Shortly after the open, the 10:00 ET Institute for Supply Management's services index was released. It rose from 54.8% in July to 57% in August. Expectations were for 55.4%, with anything over 50% indicating expansion. The report was consistent with a slowdown in consumer spending. New orders in August fell from 55.6% to 52.1%, the lowest in 40 months, while the employment index fell from 55.6% to 51.4% in August. This had minimal impact on the market, which simply held a trading range intraday until beginning to show some selling pressure once more around 10:30 ET. This picked up out of 11:30, particularly in the Nasdaq Composite, which experienced significant losses in tech stocks.

Over noon the Dow Jones. Ind. Ave. actually managed to make a new intraday high, but the pace on this upside wasn't enough to push the Nasdaq and S&Ps as far. Both managed to climb into the early afternoon, but stopped dead in their tracks upon approaching the 15 minute 20 period simple moving average. The bull trap on the day charts, created when the market closed near highs on Tuesday and then gapped under the prior day's lows in both the Dow and the S&Ps, made it extremely difficult for the indices to full the gap, despite the greater tendency for the extreme gaps in the overall market to attempt to fill. Several weeks of buying ahead of the gap added to the difficulty and the early afternoon rally was unable to attract the volume necessary to really turn things back around.

The afternoon on Wednesday was a continuation of the morning's bias and activity. The congestion over noon broke lower with two waves of selling. Again, the initial move (similar to the 10:30 ET decline in the Nasdaq), was less significant than the second part (comparable to the 11:30 ET decline). This time around, the indices experiences a stronger volume decline as the indices became exhausted with the selling at the onset of the 15:00 ET reversal period. The final hour of the day corrected to that exhaustion through yet another intraday range. The Dow ($INDU) lost 63.08 points. The S&P 500 (SPX) fell 12.99 points. The Nasdaq, weighed down by the tech stocks, ended the session with a loss of 37.86%.

Due to the trap, my focus has reversed in favor of the bears. We have had three waves of selling now on the 15 minute charts, so we do have the potential for a more significant intraday correction off support early on in Thursday's session. I do not, however, have much to add for my shorts watch list on the daily charts. CHRW, HNT, and AAI are three that are worth keeping an eye on for continued downside. At this rate it would not be unusual to see the market retrace back to the lows of the trading range from two weeks ago rather quickly, such as we looked at heading into Tuesday. As long as the selling pace remains stronger than average, it can early break even further into at least the 50 day sma support zone.

Economic Reports and Events
Sept. 6: Productivity-Rev. for Q2 (8:30 am), ISM Services for Aug. (10:00 am), Crude Inventories 9/1 (10:30 am), Fed's Beige Book (2:00 pm)
Sept. 7: Initial Claims 9/2 (8:20 am), Wholesale Inventories for July (10:00 am)
Sept. 8: Consumer Credit for July (3:00 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.
Sept. 6: AZPN, HOV, MATK
Sept. 7: FCEL, JOSB, NSM, SHFL, COO, UTIW
Sept. 8: -
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.