Good day! After several weeks marked by a great deal of hesitation in the market place, the indices finally showed some gumption on Thursday to give us once of the best days of trading since the slowdown in upside momentum a few weeks ago. In recent days, while I've still found some nice positions, I've had to work hard for them, sifting through a great deal of hay to locate the needles (luckily not getting stabbed in the process!) In Thursday's session, however, one merely had to open any gainers or losers list and find popular big movers all standing out. Flags, triangles, narrow range bases and other setups abounded in nearly textbook fashion. It was a welcome sigh of fresh air after some very long and slow days.

By the time the closing bell had rang, the Dow Jones Industrial Average ($DJI) had shed a whopping 198.94 points, or 1.5%. It was the larger one-day decline we have seen in many months. The S&P 500 ($SPX) lost 26.66 points, or 1.8%. The Nasdaq Composite ($COMPX), despite its attempt to remain on the stronger side like it had in recent weeks after the open, gave way to the bears and slipped lower throughout the session to post a loss of 45.80 points, or 1.8%.

For the third day in a row the market dropped sharply into the open. As you may recall from yesterday, I'd been looking for a third wave of selling on the 30-60 minute charts. The gap in and of itself was not really enough to exhaust the market on the larger time frames, but the market opened directly into support from lows in the previous session in the Nasdaq and Dow, leading to more bullish bias out of the bell initially. A number of stocks really took off at this point. DGX and DCP were the two that gained my attention, but some of the other top movers were CVS, BHP, GD and AHO on the NYSE and NFLX, CROX, KOMG, KNOT and HWAY on the Nasdaq.

There was relatively little change in market dynamics and bias throughout most of the trading day on Thursday after the first 30 minutes of the session. The indices rounded off into the 5 and 15 minute 20 period simple moving averages. After coming back into lows, the Nasdaq formed the clearest cut pattern and gained my focus by basing solidly into 11:00 ET with a very gradual upside move but still holding the resistance. The volume decline throughout favored a strong breakdown out of this reversal period and it was not long before the indices were into new intraday lows and picking up where they had left off earlier on the 30-60 minute breakdown.

After a solid two-wave correction over noon as the indices formed a great 15 minute continuation to the down, the trend continued nicely. The morning downside two the form of two wave of selling into 11:15 and then another two waves followed on the early afternoon continuation. This meant that an equal move was established by about 13:40 ET and by that point the indices were finally showing signs of downside exhaustion. The main problem I had, however, was that it lacked the volume surge on the 15 minute charts which is characteristic of longer term exhaustion, so it leaves room for even more selling into Friday even though it did mean an end to the 5 minute downtrend channel.

The indices formed a very nice reversal pattern at 14:30 ET when they rested the previous lows but at a lower pace into this reversal period. The volume was lighter than on the previous low and the Dow and Nasdaq made a slightly lower low to form a 2B reversal. Three small waves of buying followed and too the indices solidly into their 15 minute 20 sma resistance and price resistance in the YM (mini-Dow) at 13400. The selling then resumed into the close, although the volume still displayed no exhaustion spike despite the market closing at the lows of the day. It is quite possible that this will come through in the morning with another gap. We now have what are called "runaway gaps" in play and the pressure that had been building up at the rounded daily highs in the market now has momentum building on this reversal. It will be relatively simple at this point for the market to fall back to its 100 day sma and early April's market prices over the next week or sooner.







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.