Good day! The Dow simply could not resist the urge to try once again for that 12k level that has been taunting it in recent days. The market surged higher into the open after tame readings from the Consumer Price Index. This report is used to monitor inflation and it fell unexpectedly by 0.5% in September. Analysts had anticipated a 0.3% decline in the overall CPI. This eased concerns that the Federal Reserve may once again consider raising rates at its upcoming meeting on Oct. 25th, although the core CPI, which excludes food and energy, has continued to edge higher by 0.2% in September.

There was good news on the housing front as well Wednesday morning. New home building climbed 5.9% in September, giving hope that this recent decline will continue to see some recovery in the near future. Personally, I still think many locations are still over-developed and will continue to feel the pressure longer term, but I am all in favor of a bounce... Anyone looking to buy a beautiful house in southern Florida? If so, give me a call! =) I am actually heading back up north this week to Iowa for a court hearing to finalize the guardianship of the two foster kids we have had on and off over the years. Very exciting news, but we need a bigger house! Still, even with this increase in housing starts, the pace of building permits fell to 1.62 million, well off 1.73 million in August. This is in line with my own feelings regarding confidence in the market continuing to wane. It is likely that we will again see housing starts down for the month of October.

The early morning rally also had the aid of strong earnings, particularly in Dow components Intel (INTC) and IBM (IBM). INTC only gained about 1% by the end of the day, but it had opened significantly higher. Its news was rather mixed. Even though results were stronger than expected, INTC still experienced declining profits. IBM busted into new 52-week highs on its own earning release, gaining 3.3% on the day after beating estimates.

The rally into the open did not last long once the main session began. After a base along premarket highs, the indices broke to new highs, but once the 9:45 ET reversal period hit the buying backed off. The market rounded off slightly at those highs and this allowed the pace to change as the morning progressed, granting favor once more to the bears. The reversal was rapid and decisive. The momentum remained steady over the next hour as all three indices made a bid in favor of the closure of the morning gap. The weaker Nasdaq accomplished this very quickly. All three indices established three waves of selling on the 2 minute charts until the gap support and the 5 minute 200 sma in the Dow and S&P 500 and price support from Tuesday's lows in the Nasdaq helped the market correct off the 10:45 ET reversal period.

This reversal off the day's highs pushed the market back into that larger trading range on the 60 minute charts that we were looking for heading into Wednesday's session. Both the Nasdaq and S&Ps did a good job of holding that range despite the Dow widening it out of the open. Since the pullback off the morning highs was still average to above average in terms of momentum, the market did not pivot sharply off the 10:45 ET support. Instead it moved steadily higher, but with a lot more overlap than seen in the last couple of waves of buying and selling on the 5 minute charts. As a result, it was unable to turn over on the smaller time frames to allow for a stronger break to highs into the afternoon. Instead, the pace slowed even more and volume dropped off as the indices hugged the 15 minute and then the 20 minute simple moving averages, resulting in a breakdown into the early afternoon.

The market again found support when the mini-sized Dow hit 12k and its 30 minute 20 sma. This corresponded to the 13:30 ET reversal period and a volume spike as the indices became exhausted. The decline was not as significant as the morning selloff, so I was initially looking for a slower pace back up into resistance to allow for a continuation on the down side into the last hour of the day. Instead the market flushed higher into 14:30 ET and took the indices back to their 15 minute 20 sma resistance levels very quickly. The earlier weakness was still present, but no longer had the momentum to break the day's support and instead the indices fell into a choppy trading channel for the rest of the day.

The Dow Jones Industrial Average ($DJI) failed to remain above the 12k mark into the close, but it still gained 42.66 points on the session. The S&P 500 ($SPX) rose 1.91 points. The Nasdaq Composite ($COMPX) continued to remain weaker, losing 7.80 points on the day. This divergence can be seen with a comparison of the sector results. The semiconductors, networkers and computer-hardware sectors all lost ground on the day, keeping pressure on the Nasdaq. The pharmaceutical sector, on the other hand, moved higher on assistance from strong earnings in Abbott Laboratories (ABT).

I don't have a strong bias in the overall market heading into Thursday. The indices still look like they wish to remain congested on the 60 minute charts, but the current activity is still more bullish on the daily charts since the buying this week has not been strong enough to flush out buyers on the upside. I'll be focusing mainly on intraday setups at this time.

I will be out of town over the next couple of days. I will resume this column when I return next Wednesday. I hope the market is good to you.

Economic Reports and Events
Oct. 19: Initial Claims 10/14 (8:30 am), Leading Indicators for Sept. (10:00 am), Philadelphia Fed for Oct. (12:00 pm)
Oct. 20: -
Oct. 23: -
Oct. 24: -
Oct. 25: Existing Home Sales for Sept. (10:00 am), Crude Inventories 10/20 (10:30 am), FOMC policy statement (2:15 pm)
Oct. 26: Durable Orders for Sept. (8:30 am), Initial Claims 10/21 (8:30 am), Help-Wanted Index for Sept. (10:00 am), New Home Sales for Sept. (10:00 am)
Oct. 27: Chain Deflator-Adv. for Q3 (8:30 am), GDP-Adv. for Q3 (8:30 am), Michigan Sentiment-Rev for Oct. (9:50 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. 19: AVCT, BAC, BAX, BBT, BHE, BGG, BRCM, CNI, CERN, CHKP, C, CMA, CAL, CREE, C, DHR, DJ, ELNK, LLY, ENDP, EFX, EXAR, FCS, FITB, FSL, GOOG, HON, HBAN, HYSL, INFA, LRW, LSTR, LEG, MCD, MOLX, NE, NOK, NVS, NUE, OXPS, BTU, PMCS, POOL, DGX, RMBS, RBAK, RS, RHI, ROH, SNDK, SAP, SHW, SIRF, SLM, LUV, SPWR, SY, SYNA, ERIC, TPX, TXT, BK, KO, HSY, MHP, NDAQ, NYT, TRB, UNP, UB, UNH, VRSN, WCC, WSTL, WYE, XLNX, ZION
Oct. 20: MMM, ACI, CAT, ECL, MRK, NETC, SAY, SGP, SLB, VMSI
Oct. 23: AXP, AMGN, ABFS, T, ATHR, BRO, BUCY, CNET, DST, ETH, FDC, FM, FDG, GRP, HAL, HAS, N, KMB, KFT, LNCR, FLSH, NFLX, PTV, PRE, PBI, PCL, ROK, SLAB, SWN, TXN, VECO, WFT, WU, XRX
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.