Good morning! Wednesday's trading session was a nice, smooth one with support and resistance levels holding even better than usual. The SP500 and Dow Jones Ind. Ave. both had solid downtrend days as well with the upside pace more gradual on the corrections off support. The market still held the range on the daily charts that we have been watching and helped to time pivots intraday.

The day began Wednesday with a slight gap lower. It crawled higher for the first half hour of the day until it came into the prior 5 minute highs from Tuesday. This served as resistance and created a pivot as the 10:00 ISM numbers came out. The selling following this report was rather strong, making it more likely that we would see that downside continue as the day wore on. Support hit at about 10:30 ET and the NASDAQ slowly moved back into highs while the SP500 and Dow based along lows to create bear flag formations. The declining volume favored a break lower since it meant that there were no strong buyers and no euphoria in the upside move. When the 12:00 ET reversal period hit as the SP500 came into its 15 minute 20 sma and the NASDAQ hit prior highs, all three indices broke down strongly.

By 12:30 the market formed a small exhaustion move as the SP500 came into its 5 minute 200 sma support and the NASDAQ hit prior lows intraday. As you can see, these larger support and resistance levels from prior pivots and larger moving averages held very well. When this 12:30 ET support hit, the correction was again more gradual overall, but it was stronger than the move out of 10:30 ET. This is actually pretty normal. When you have a base breakdown, the next correction tends to have more of a price correction than the one that preceded it.

The stronger NASDAQ bounced the most off support, managing to put in those slightly higher highs I warned about yesterday. The high was rather minor, but it led to a bit more hesitation than the last time before turning back around. The selling on the 13:30 pivot began rather gradually, only picking up pace as support levels on the 5 minute charts gave way. In the SP500 this meant the 5 minute 200 sma again, while it was 5 minute 20 sma support that broke in the NASDAQ after a short base. This created to the strongest selling of the day and the end of a third wave of selling in the SP500 on the 5-15 minute charts

The wider than average bars and volume spike into 14:30 combined with price support to end the breakdown and lead to another more gradual upside move off those lows. Again the volume dropped off during the bounce, showing a lack of participation from the bulls. The 5 minute 20 sma served as strong resistance and the market moved back into the intraday lows before the closing bell.

The indices are continuing to perform very well to create the scenario I was looking at going into the week for a trading range with a breakdown about a week or so later. The range has progressed and the indices have been hugging the lows of the summer as volume declines. A few more days of a range would be ideal to create the selloff on the daily charts. At this time I would start to look for shorts as swingtrades in stocks whose daily charts resemble the one in the Dow Jones Ind. Ave. The 20 day simple moving average in the NASDAQ could help propel it lower by serving as a catalyst for a breakdown.

Economic Reports and Events
July 07: Initial Claims 07/02 (8:30 am)
July 08: Average Workweek for Jun (8:30 am), Hourly Earning for Jun (8:30 am), Nonfarm Payrolls for Jun (8:30 am), Unemployment Rate for Jun (8:30 am), Wholesale Inventories for May (10:00 am), Consumer Credit for May (3:00 pm)
July 11: -
July 12: -

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
July 07: CAN (A), AA (A), FLE (B), LI (?), PBG (B)
July 08: -
July 11: DNA (A), PKX (B)
July 12: AMTD (B), MI (B), PEP (?)

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.