Volatility in the market remained high in Wednesday's session as the major indices continued to react to the support levels which have been hitting over the past week or so. This was in line with our expectations heading into the session. Fortunately, the continuation of the move off support did lead to some very nice intraday setups in individual stocks, even though the indices were a bit more difficult to follow.

Among my favorite gainers due to the daily charts serving as favorable setups for a trend day were SPG, ATI and NMX. Unfortunately, I had to take off early on in the session and missed the best action on the day. Given the number of pivots off support on Wednesday and the fact that Wednesday was the third day of upside in the overall market, I am expecting things to be a bit more difficult in equities again into the weekend. My overall bias is still short-term bullish, however, so I will be focusing primarily on buy setups with more of a scalp perspective on the short side unless it is something moving on news.



Wednesday began with a nice upside gap into the zone of Tuesday's highs. Instead of reacting to that resistance level, the market held the gap without hesitation and fell into a trading range without any pull back into the gap zone. This was a promising start for the bulls. A trading range ensued until the 10:15 ET correction period when the indices broke to new intraday highs. In the larger scheme of things this early morning breakout was too soon on the 15 minute time frame where a rally had been in play ever since reversing after Tuesday's Fed announcement. Without some sort of base or pullback on the 15 minute time frame, it would be difficult to sustain much more upside. The market did creep higher into about 10:45 when the next correction period hit, but then succumbed to the larger time frame exhaustion and began to pull back into noon.



Interestingly, Wednesday's trading in the overall market did not differ a great deal from that of the previous session if you line up the trading that began at 10:15 ET to the activity which began at the open on Tuesday on the 5 minute time frame. After the steady move higher, the market began to pull back. It did so with a very typical two-wave correction which lasted into noon. Volume dropped off a bit and was the lightest during the second wave of selling on the 5 minute charts over noon, suggesting an upside resolution to the trading range. This bias was supported by the fact that the second wave of selling was also slightly more gradual than the first and made a smaller move to the downside, even though it took nearly the same amount of time as the drop out of 10:45 ET.



The two-wave correction in the market triggered a buy setup shortly before 12:30 ET in the indices. The momentum was still on the slow and choppy side, but a number of individual stocks which had been showing strength earlier in the session experiences strong upside breakouts as the overall market began its climb. The mid-day pattern in the indices was a variation of the same pattern we experienced on the daily time frame over the past two and a half months. Just look at the daily charts and compare them to the 5 minute time frames. I've marked both in green to show the comparable moves. In a recent presentation in Denver I spent a great deal of time on this particular market development because it's one that repeats over and over again in the indices as well as in individual stocks.

Throughout the first half of the afternoon the market moved steadily higher. At 14:30 ET, however, the gradual uptrend gave way and the market flushed quickly lower. This was due to the slower upside momentum and has been the primary risk throughout the past two days as a result of the slower pace of the buying and the greater degree of overlap from one bar to the next on the intraday time frames. When the channel support broke, the selling was quite extreme. It reclaimed all of the gains in the Dow and nearly all the gains in the S&P 500 and Nasdaq Composite. In the final half hour of trading the bulls lucked out and the gap support held. The Dow ($DJI) managed to add back 153.56 points before the bell, while the S&P 500 ($SPX) rose 20.78 points and the Nasdaq ($COMPX) gained 51.38 points.

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.