Good day! The market had another crazy day on Wednesday, beginning with a strong gap up into the open after 8:30 economic data came out. The consumer price index dropped 0.1% in May for the first time since last July, in large part due to a 2.0% decline in energy prices. This move was very unexpected. Unfortunately, the gap was right smack into strong price and moving average resistance intraday. It was not only the prior day's highs, but also the 15 minute 200 sma in the NASDAQ, as well as the 10 and 20 day simple moving averages in that index. Due to the larger than average gap, this resistance would have a hard time breaking without first correcting by at least basing along those highs. As you can see, however, that correction got off to such a rapid start that it didn't stand a chance at holding up for a continuation.

The pace off opening highs began at a rate that was stronger than average, picking up speed just after 10:00 ET. This led to the gap zone filling and the market hitting the next support level intraday. It was the 5 and 15 minute 20 sma in addition to the gap support. This created a slight correction that lasted until just before 10:30 ET. At that point, the small base at lows gave way to the third wave of selling intraday on the 1-2 minute charts and, much as the second move built upon the first, this third move picked up even greater speed.

As you can see, even though these breakdowns didn't correspond to reversal periods, each support level did. The first hit with the 9:45 ET reversal period, then the second hit with the 10:15 reversal, and this third move followed that trend. The pace slowed into the 10:45 ET reversal period, but finally stopped right at the 11:00 one.

If you take a look at the 60 minute charts over the past couple of weeks, each of the strong waves of buying or selling lasted for about the same period of time and had very comparable price moves. By the 11:00 ET reversal period we now had that typical range established. As a result, I expected that we would see a greater correction, either basing near lows to form a continuation short later on the day, or following in the trend of prior action and rounding off at lows in order to pull back up in the afternoon.

The 11:00 ET reversal period held perfectly, but upon coming into trend channel resistance in the SP500 and Dow it rounded and turned over to fall back into lows. Again, the reversal period held support, this time at 12:00 ET and the SP500 and Dow both formed 2B reversal patterns by only barely breaking prior lows. This led to a pivot back into the 5 minute 20 sma in those two indices where they formed small Phoenix patterns by basing along the resistance on declining volume before breaking higher. This was so small a time frame, however, that it only had scalp potential. The same was true for the third wave that followed in the SP500 off the 13:00 ET reversal period when the index pulled back to its 5 minute 20 sma support. Once again, notice the reversal period support. This took the index back into resistance from the prior day as well as the 15 minute 20 sma where a slightly higher high on the 5 minute charts off the Bull Flag created a 2T double top.

I didn't follow the indices too closely at this point while I grabbed lunch, but if you look at the 5 and 15 minute charts, you can see that the market was now rounding off at lows. The indices all began to form Reverse Head & Shoulders patterns going into the early afternoon. This took the market initially back to earlier 5 minute highs where another small Bull Flag into the 5 minute 20 sma coming out of 14:00 ET led to a move back into price resistance from earlier in the morning. At this point, the reversal periods stopped holding as well as they had in the morning and beginning of the afternoon.

With the pace picking up on this move higher though, it made new lows in the afternoon unlikely. Even when the indices tried forming another 2T on the 5 minute charts just before 15:00 ET, I didn't even bother to follow it because such a turnover on the larger time frame will typically hold and the risk to reward just isn't that great to try to go against that trend when it's only half way back to prior highs. It didn't quite make it all the way before the close, but it sure tried and hit the general zone of those highs.

Overall, the market is finally starting to show a bit more conviction for me. The NASDAQ 60 minute charts had three waves of selling off the highs earlier this month. Then it put in a longer rest going into Wednesday morning before putting in a 4th move to the downside. We saw this same type of pattern intraday on the 5 minute charts. As such, it is likely that we see that downside move now turn around for an even greater correction on the 60 minute to daily charts.

The main difference between the 5 minute versus the 60 minute pattern development is that the pace on that 4th move on the 60 minute charts was a bit more extreme than on the 5 minute and this can mean a slower turn over in the trend. The only other concern is that the Commodity Channel Index for the SP500 and Dow is at some overbought levels. The pace and CCI are the only cons I am really coming up with that would prevent the market from trying to break higher. As such, I would be much more cautious on shorts at this point than longs and am planning on focusing primarily on buy patterns going into Thursday.

Updates: AAP from the $51.88 zone on the 4/25 hit new highs of $63.50. Trailing stop initiated for position trades. Some hit. ASKJ had highs of $32.78 from the 5/18 breakout. Closed with a trailing stop. CI triggered on 5/26 with the break of $97.55 and has highs of $105.95. Targets hit and trailing stops now initiated. RT from the $15.40-.50 zone has highs of $16.01.  GR is still in a range and needs to hold Wednesday's lows. I also want Wed. lows to hold in EL. WAG from 6/13 flushed on Wed. to hit the adjusted stop of the 20 day sma break. USG and SPLS are still of interest for upside breakouts and SLXP broke out on 6/15.

Economic Reports and Events
June 16: 8:30 am - Jobless claims, Housing starts; 12:00 noon - Philly Fed
June 17: 8:30 am - Current account; 9:45 am - Consumer sentiment

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 stocks' earnings dates 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
June 16: ADBE (A), CCL (?), GS (B), KBH (A), WGO (B)
June 17: CC (B)

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.