Good day! The market had a remarkable session on Wednesday with a strong trend day following the congestion at Tuesday's highs. I found the morning to be rather difficult though. A lot of stocks established extreme gaps into the open following earnings news and when a gap is more than twice an average day's range it can have a very hard time following through during the day. Many who end up caught the wrong way are apt to just say, "Well heck, I've lost so much already, I'll just hold it and see what happens." The ones who are well-positioned then realize that with that large of a move, there's a greater chance it will keep going in the long run and will just hold on. So, even though there is a lot of volume from new players or those that have to cover the position, the overall result is that these gaps don't often get the strong continuation momentum right away, if at all.

Even with great intraday buy setups like in PRAA which gave one of my favorite patterns at 10:15 ET, I had trouble feeling a lot of confidence that it would take off like the pattern typically does. In fact, it did take a lot more chop and time before the buying did pick up. Instead of just popping, it crept higher and only accelerated in the afternoon. Nevertheless, my best trade of the day was still one of these extreme gaps. It was in XNPT and I picked it up at $37.40 expecting that with the momentum increasing in the market, XNPT would end up trending higher into the close, although I was still surprised at just how well it did. The highs ended up being $42.47, while it closed at $41.56. These setups are often more the exception than the rule, however, and can make this type of market more difficult. CHRW, ORLY, KTO, EYE and CHAP for instance also all had those larger gaps, but they performed more along the lines of typical extreme gap reactions and just got stuck holding the early morning highs and fell into a range into the close.

After gapping up into the open on Wednesday, the indices each had two waves of selling on a 1 minute time frame. They closed the morning gap in the index futures, finding support into the 10:15 ET reversal period. At that point the market formed the head of what then became a reverse head and shoulders continuation pattern, breaking higher around 11:30 ET. The pattern took the Nasdaq to new intraday highs, but stalled when the S&P 500 and Dow hit the opening price resistance again. This corresponded to the Dow's 13,000 price resistance.

The reaction off this price resistance level was rather mild. The indices pulled back gradually on declining volume into the 13:00 ET correction period and the 5 minute 20 sma. The support held and another upside continuation followed. From that point on the trend remained more steady on the 15 minute time frame, showing no noticable corrections. The only chance to catch the move after that was on very small bull flags on the 1 minute charts, giving a trigger about every half hour. These meant that the targets on each move were scalpish, only lasting about 15 minutes each if not taken as part of the larger 15 minute breakout.







As I mentioned yesterday, the Dow could easily push through the 13,000 price but still be considered to be within the resistance zone on the larger time frames. At present, it appears as though it will hold up here fairly well. The Dow closed at 13,089.89. Given the increased momentum, the market will have a difficult time retracing sharply off these prices in anything other than short-lived flushes. The overall corrections should take much longer to take back any gains than it did making them unless the market can push to new highs after resting and do so with a more gradual upside move to turn the pace over. Even then, I would expect this to have to happen on a daily time frame and not be as easy to accomplish intraday with any lasting affect.

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.