Market volume remained high on Thursday after last week's steep selloff, but the indices continued to try to correct from the daily support levels which hit late last week in the S&P 500 and Dow Jones Industrial Average. The market resumed Wednesday's late day surge right away into the open, moving higher for the first 15 minute of the day. When the 9:45 ET reversal period hit, however, the indices began to round off and correct off the extreme momentum move on the 15 minute time frame. The extent of the 15 minute move meant that the indices would have a very difficult time resuming the buying without a correction taking place on the larger intraday time frames. The momentum of the move also meant that such a correction would tend to be more gradual overall than the rally, which created a strong chance for a trading range throughout the session on Thursday. This is, of course, what we had been expecting heading into the day, so at this point not a lot had changed in terms of the day's outlook.

At first the indices were a bit on the bearish side, pulling back off the 9:45 ET highs at a steady clip. Support hit initially at the 10:15 ET reversal period and volume dropped off a bit as the indices hugged the support zone with only a very gradual upside move before giving way to a second wave of selling out of the 10:45 ET reversal period. I've talked a lot about corrective moves in the market and how typical corrections will take place with two waves of downside. The same was true this time around as well. In the Dow and Nasdaq the second decline only barely pierced the initial low and this led to a form of double bottom pattern called a 2B, which took those indices back into the previous 5 minute highs at about 11:30 ET.



The momentum coming out of the second wave of selling was faster than the first correction off lows, favoring a bullish bias into noon. The indices based slightly along the upper trend channel intraday and broke to new intraday highs heading into noon. A major problem with this otherwise ideal breakout was that fact that on the 15 minute time frame this breakout attempt was still very premature and the market had not corrected nearly long enough to sustain a strong continuation move after the extreme rally from the previous afternoon. So, while the breakout was nice from a daytrade or scalp standpoint, it only managed to establish an equal move as compared to the bounce off lows into 11:30 ET when it broke higher into noon on the 1-5 minute time frame.



Another two-wave correction took place in the market in the early afternoon. As in the morning, the market fell off highs and into support from about the 5 minute 20 simple moving average. Volume again declined as the indices hugged this support zone and for the second time on Thursday. The indices again broke this support for another quick daytrade/scalp into 13:30 ET. This time the amount of the break was greater in the Dow and Nasdaq than before and the corresponding correction off the second low was hence a bit more choppy and uncertain as well. The market had two hesitant upside moves into about 14:15 ET on the 1-5 minute time frame, but pulled back before reaching the previous highs.

This third pullback off the highs finally did the trick. After the 15:00 ET reversal period hit, the market began to creep upwards. At about 15:30 ET the volume began to climb and the bulls scrambled higher as the day's range broke to new highs on the session. Even though they pulled back slightly into the close, the Dow ($DJI) still managed to 100.96 points on the day, while the S&P 500 ($SPX) rose 6.39 points and the Nasdaq Composite ($COMPX) added 22.11 points, exceeding the Dow and the S&Ps in terms of percentage gains with a 0.9% increase, as compared to the Dow's 0.8% move and the S&P's 0.4% gain.



Despite the range, a few stocks managed to make waves with extreme up and downside moves. One of the top gainers was Hewlett-Packard Co. (HPQ), which gained 3.2% aftter Bank of America upgraded it to a buy. Advanced Medical Optics Inc. (EYE) climbed 5.2% when it withdrew its bid to buy Bausch & Lomb Inc. (BOL). Beazer Homes USA Inc. (BZH) managed a bit of a comeback after rumors of bankruptcy plunged it more than 40% on Wednesday and closed up13.6%. Checkfree (CKFR) had one of the largest gains, rising 23.3% after agreed to be acquired by Fiserv (FISV).

Earnings news also managed to move a lot of securities on Thursday. Credit Suisse Group (CS) rose 5%, while Eastman Kodak (EK) rose 5.4% on earnings. Furniture Brands International Inc. (FBN), Invitrogen Corp. (IVGN), Nokia Corp. (NOK), Sirenza Microdevices Inc. (SMDI), and Unum Group (UNM) also rose strongly.

Not fairing as well were Accredited Home Lenders (LEND), which fell a whopping 35.3% to add to the concern of credit woes when it delayed it annual report for 2006. Ameristar Casinos Inc. (ASCA) drop 9.5% on earnings and Bare Escentuals Inc. (BARE) dropped 12.5%. ELY, CHE, CLX, GTW, and GYI also had difficult sessions and closed at least 5% lower.

My outlook at this point remains the same. I am looking for more of a correction off this support zone, but the odds remain higher that things will continue to be rather choppy. My intraday bias heading into Friday is slightly bullish for the short-term. My commitment level is not that high yet though.

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.