Good morning! The market gapped strongly higher on Thursday, following the announcement of an upward revision to the fourth-quarter GDP. The Commerce Dept. stated that the economy grew at a 2.5% annual pace last quarter, somewhat stronger than the previous estimate of 2.2%. The gap took the market right smack into strong resistance, however, at the previous day's highs in the S&P 500, the 5 minute 200 simple moving average in the S&P 500 and Dow Jones Ind. Ave., and the 15 minute 200 sma in the Nasdaq Composite. This was more than enough incentive for the indices to begin to fill the gap.

The indices ran into support at 10:00 ET as the Nasdaq hit its 5 minute 20 sma. They then began to hug the level. Volume was steady despite a move higher. The 5 minute 200 sma remained resistance in the S&Ps and Dow and the selling resumed as the support gave way into 10:30 ET. By 11:00 ET the Nasdaq had filled its gap and this marked the second support level of the day. It corresponded to the Dow's 15 minute 20 sma support as well and the market fell into another correction, pulling higher into the 5 minute 20 sma. The volume dropped on the buying, indicating a lack of truly motivated bulls. Once it had corrected a similar length of time as before and came into that minute 20 sma resistance, the the selling resumed for a third wave of downside into noon.

Although following three waves of selling, it tends to take 1.5-2 times as long as the previous corrections before the market can make another move in the direction of the trend. This allowed the market to base again until 13:15 ET, but the pace didn't really increase until about 13:45 ET. This created the fourth wave of selling in the downtrend intraday on Thursday. When this happens, the trend then usually breaks. I was expecting this to take place at about the same time as the 14:00 ET correction period, but it did take a couple of minutes longer for it to get going, so I didn't cover my Dow short until 14:07. The buying began slowly, but soon picked up, rapidly retaking the losses from the previous decline before forming a continuation pattern by basing along that resistance and then breaking higher with a strong uptrend for the last hour of trading.







Thanks to the late day rally, the market managed to put in a gain on Thursday. The Dow Jones Industrial Average rose 48.39 points, while the S&P 500 climbed 5.3 points and the Nasdaq Composite, which was the weakest of the three, gained a mere 0.78 point. This rally also still makes it possible for the indices to attempt a cup with handle pattern on the daily time from in the next week or two. I'd want to see it hold this week's lows though. Otherwise it will have a more difficult time breaking through last week's highs.

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.