After an extended holiday weekend due to President Ford's funeral and day of mourning on Tuesday, the market got off to a great start on the new year. The Dow Jones Industrial Average hit triple-digit gains in first hour of trading, establishing a new record highs of 12,474. After that, however, the volume in the market dried up substantially. The market began to pull in, rounding off in a manner than left little room for continued buying. The upside pace slowed and the downside increased. The indices gave up even more of its gains as the 12:00 ET reversal period hit.

Volume continued to fall to they wayside as market participants became more passive ahead of the first FOMC announcement of the year. The momentum bias remained bearish throughout the early afternoon. The members of the Fed expressed continued concern over inflation and voted to keep the Fed's overnight interest rate steady at 5.25%, and left the door open to the possibility of additional interest rate increases. One member, of the committee expressed the desire to raise rates immediately to combat inflation. The market's reaction to this news was less than favorable. The bears took the helm and refused to give up control until the last hour of the day. Essentially, the recent bulls used this as an excuse to go ahead and take gains after six months of steady upside.

The waves of selling on Wednesday afternoon lasted until 15:00 ET. The corrections between each of the three post-Fed moves on the downside were very minimal, lasting less than half an hour each. Three tends to be a magic number on a trend and the market became very exhausted by the last hour of the day. It appeared likely that the indices would hold that support zone for the remainder of the session.

The bounce off the lows was actually more than I had expected given the extent of the selling, and although it still took place at a more modest pace than the selloff, it allowed both the Dow and Nasdaq Composite to close positive on the day. The Dow Jones Ind. Ave. gained 11.37 points, while the Nasdaq Composite gained 7.87 points. The S&P 500 was not as lucky. Even though it tried, it was unable to hang onto any of its gains and closed lower by 1.67 points.

Most of the market leaders and laggards made themselves known early on in the day Wednesday. The top performing sectors included networking, transportation and the airlines. Many of these were China stocks. The primary losers included natural gas, metals, and oil.

I have had a difficult time lately locating new positions for longer term holds. Many of the market dolls are looking substantially overbought.  Ater six months of upside in the overall market, it will be easy for the indices to fall into a longer-term correction on the weekly and monthly charts. In the shorter term, I will be mainly looking for intraday pivots and reversal on Thursday since the reversal off the lows was enough to force the indices into a trading range on the 30-60 minute charts.

Economic Reports and Events This Week
Monday: -
Tuesday: -
Wednesday: Construction Spending for Nov. and ISM Index for Dec. (10:00 am), FOMC Minutes 12/12 (2:00 pm), Auto Sales and Truck Sales for Dec. (5:00 pm)
Thursday: Initial Claims 12/30 (8:30 am), Factory Orders for Nov. and ISM Services for Dec. (10:00 am)
Friday: Average Workweek, Hourly Earnings, Nonfarm Payrolls, and Unemployment Rate for Dec. (8:30 am)

Key Earnings Announcements This Week
Monday: -
Tuesday: -
Wednesday: BLUD, SONC
Thursday: STZ, MON, MSM
Friday: GPN
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance and Briefing.com. 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.