Good day! I've been out of the market for most of this week, but in the interim the indices have continued to correct along the support zone which hit late last week. The S&P 500 ($SPX) and Dow Jones Industrial Average ($DJI), which had experienced the greatest selling last week, have been holding those lows the most diligently. The Nasdaq Composite ($COMPX) had taken back less of its gains from the last couple of months last week and on Tuesday it broke through the 50 day simple moving average support and nearly hit its 100 day sma on Wednesday.



After gapping higher on Tuesday, the market slid lower throughout most of the day, gaining momentum into the closing bell. This momentum followed through into Wednesday morning, but stalled when the 9:45 ET reversal period hit. A rather rapid, albeit brief, rally took the indices into 5 minute 20 sma resistance around 10:15 ET as the next reversal period hit. This time the overall decline was somewhat slower than before and slowed even more into 11:00 ET. By putting in only a slightly lower low at this next reversal period it created a double bottom trap called a 2B and the market reacted by moving higher throughout the mid-day.



Even though the selling had slowed somewhat into 11:00 ET, the pace of the decline was still above average. So, even though the market bounced quickly right away off the 2B lows, the 5 minute 20 sma again stalled the move and pushed the indices into a range which slowed the overall upside on the 15 minute time frame. This momentum was similar to the larger adjusted pace of the morning to date and created the greater potential for a trading range on the 15 minute charts. Previous highs served as resistance and the market pulled lower again out of 12:30 ET with a second move lower into 15:00 ET. This second move experienced a great deal of overlap from bar to bar and on the 15 minute charts the entire afternoon drop was hugging the 15 minute 20 sma resistance, creating a bullish setup into the final half hour of trading. Volume spiked as the resistance gave way and eager bulls jumped at the chance for what they believed to be a great buying opportunity in an oversold market environment.



By the closing bell the Dow had gained 150.38 points. The S&P 500 rose 10.54 points. The Nasdaq rose to a lesser degree with only a 7.60 point gain.

I don't know that I am as excited as these late day bulls were. Yes, intraday it was a perfect opportunity, but I am not quite ready to believe in the odds of these exact lows actually holding. I think that it will be very simple for the market to try to chop around here for a few more days before we really see another decent attempt to correct off these lows. Greater overlap on the daily time frame and slightly lower lows over a few days would actually allow the market to jump more quickly and sustain a larger correction in terms of price movement on the upside than it it does just try to begin that move on Thursday. When the correction does take place, I still expect just under the previous highs to serve as very strong price resistance.

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.