Good day! That momentum change we were looking for to kick off a correction in the market finally set in on Thursday and did so very early on with yet another downside gap. Since this was the third such gap in a row, however, the chances of it filling like the previous two had was rather slim. The result was some very choppy trading coming out of the open. The market did pull slightly higher, but the 5 and 15 minute 20 sma overhead served as strong resistance and the market was unable to push through it. While a few stocks such as FRPT, DLTR, MRGE, LAMR, KBR, and MGA posted large gains on the session, the market as a whole few into a strong downtrend, but without the chop on the 5 minute charts that has plagued many of the recent uptrends over the last couple of weeks.

After slowly pulling into the 5 and 15 minute resistance, the market broke lower with highs at the 10:45 ET reversal period and a breakdown into the 11:00 ET one. The declining volume throughout the morning up until that point helped out by displaying a lack of buyers despite the somewhat higher highs. Once the trend line intraday broke, the volume increased, as did the momentum. The indices dropped quickly to new intraday highs, confirming the change in momentum and the start of a larger correction off the daily highs.

The indices found initial support at the S&P 500's 15 minute 200 simple moving average, while the Nasdaq stalled at previous 15 minute lows. A three bar continuation pattern took place on the 15 minute charts and the market again broke to new lows heading into noon. This was one of the strongest intraday volume moves in recent weeks other than the surge which accompanied the Fed announcement. This indicated exhaustion even though it was only the second wave of selling intraday and hence left room for a third before a larger move off lows to break the downtrend line would be necessary. The correction leading into that third drop was slightly longer than the previous correction, but the 5 minute 20 sma held and a third move lower took place heading into 13:30 ET, although the pace was not as strong as in the prior declines.







The slowdown in the selling and the exhausted intraday trend as a result of three waves of selling now in place opened the door for a 2B, which is a type of double bottom where a very slightly lower low traps new bears and flushes out the new bulls. The resulting bounce broke the downtrend line and took the market back into the previous 5 minute highs. This corresponded to the 15 minute 20 sma, which served as resistance and held throughout the remainder of the session. The indices closed just a few ticks off the lows of the day with a loss of 147.74 points in the Dow ($DJI), 21.11 points in the S&Ps ($SPX), and 42.60 points in the Nasdaq ($COMPX). It is likely that this daily correction will continue for at least a few days, and probably much longer than that. A correction that becomes apparent on the weekly charts would be ideal since it would open the door for some stronger upside momentum again without concerns of the market being too extended already.

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.