Good day! After turning over on Monday afternoon to give way to strong selling, the market had fallen into a trading range into the close. This low level base indicated a desire on the part of the bears to continue the selling into Tuesday. Typically the 15 minute or 30 minute 20 simple moving average hitting will help trigger this move. This time around, however, the selling began early on, continuing lower right out of the open. This early flush makes it easier for the market to pull back up into the range. A stronger upside pace can then lead to another change of direction, while a slower upside pace generally holds the congestion zone and leads to a return of the prior trend.

It did not take long for the bulls to begin to take over out of the 9:45 ET reversal period. The Dow Jones Ind. Average once again emerged as the leader, pulling sharply up to the 5 minute 20 sma. The S&P 500 and Nasdaq lagged, but still began to follow along. Small pullbacks on lower pace and lighter volume were soon followed by a stronger confirmation of the change of pace with rapid upside into their own 5 minute 20 simple moving averages.

Following this morning reversal, the market continued to move higher, establishing three strong waves of upside into the early afternoon. The second 5 minute move began with the 11:00 ET reversal period, breaking higher out of a 5 minute Phoenix when the congestion along the 5 minute 20 sma broke. This move stalled when the Nasdaq found resistance from the prior afternoon and 15 minute 20 sma and the S&P 500 also hit resistance from Monday afternoon.  This second move was stronger than the first, and set the mood for a third and even greater wave of buying coming out of the 12:00 ET reversal period.

It was this third upside move that took the Dow to new highs. Usually after three waves of buying whereby the correction periods between each wave are comparable in time development you will then see a much more significant correction to follow. This began around 12:30 ET. An early attempt at a new high created a trap, but the rapid upside into it deterred a strong reversal and instead forced the market into a range. The Dow closed at record highs at 11,727.34 (+56.99 points). The S&P 500 gained 2.79 points on the day, while the Nasdaq Composite rose 6.06 points.

The morning reversal is interesting in that so many of the market sites out there have turned very bearish, but we have yet to see that reflected in follow-through lasting more than about a day. Nevertheless, I am still more cautious for the longer term. On the shorter term for daytrades I have not been finding as much over the last several trading days for the core patterns I favor. This had made things very slow for me lately, but that's better than getting hit by a lot of stops. Every trader has a style that best suits them and sometimes it can be tempting to press things even when they don't fit. It's very important to not give into that urge, however, and stick to what works best for you in the long run.

Economic Reports and Events
Oct. 4: Factory Orders for Aug. and ISM Services for Sept. (10:00 am), Crude Inventories 9/29 (10:30 am)
Oct. 5: Initial Claims 9/30
Oct. 6: Average Workweek, Hourly Earnings, Nonfarm Payrolls and Unemployment Rate for Sept. (8:30 am), Consumer Credit (3:00 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.
Oct. 4: ARRO, CPRT, GY, BLUD, RPM, VTS, WWW
Oct. 5: STZ, MAR, MU, SLR
Oct. 6: -
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.