The market remained under pressure on Wednesday as heavy late-day selling once again bombarded the bulls. The Dow ($DJI) closed under the 13,000 level for the first time since April after losing 167.45 points. It ended the session at 12,861 with a loss of 1.3%. The S&P 500 ($SPX) lost 19.84 points (1.4%), and closed at 1,406.7. The Nasdaq Composite ($COMPX) ended the day lower by 40.29 points (-1.6%), at 2,458.8. One of the top losers was Countrywide Financial (CFC), which fell 3.17 points, or 13%, after it was downgraded from buy to sell status by Merrill Lynch. Another stock which has been extremely hard-hit by the fiasco with sub-prime mortgages was KKR Financial Holdings (KFN). It fell another 31.2% on Wednesday after announcing the sale of $5.1 billion in residential mortgage loans and suffering a downgrade from Lehman. 

 

Wednesday's economic data had very little impact on the day's activity. During premarket trading the Labor Dept. reported a rise of 0.1% in July in the Consumer Price Index. This serves as a measure of price inflation on food, energy, and consumer products. The core consumer price, which excludes the food and energy portion, increased 0.2%. Both of these numbers were in line with expectations. The Empire State Manufacturing Index, which also came out at 8:30 a.m. ET and measures manufacturing activity in the New York area, slipped lower to 25.1 in August off the 26.5 level in July. This index had been expected to fall to 19.0. 

 

Although the end result of Wednesday's session was a marked decline on the day, intraday things got off to a sloppy start and patterns throughout the day were less obvious than usual. What I mean by this is that there were fewer clear-cut setups and trend moves were hesitant at best. Even the start of the late-day decline was not overtly suggestive that such a move would take place because the move began after an increase in upside momentum when the market rallied back into its morning highs. Once the uptrend channel broke, the market sold off without any real correction to catch a continuation move on anything other than a 1 minute chart throughout the remainder of the day. The trend channel was narrow and steady. Typically a late day trend will at least have a bear flag or such on a 5-minute time frame. Not this time!

I was in and out throughout the day on Wednesday. I had an early morning drive up to Tampa to drop off a friend at the airport and missed the morning trading. When I came back and began to scan in the early afternoon, I found that most of the decent setups intraday were on the downside, but many of the top gainers and losers that came up on my scans were rather thin. I didn't find a single thing that I felt was worth the risk to trade and spent the afternoon moving my office instead. I'm now on DSL and hoping that the noticeable difference in speed between this and the cable in my main house will not affect trading tomorrow! My only trade of the day was in the afterhours session when I made a tick on one contract in the NQ when I was testing out my connection! Let's see... That's 20 cents after commissions! So, at least it was a positive day! 

 

I was expecting the market to have a bit more of a reprieve from the selling this week, but the failure of the market to hold the support zone on Tuesday and into Wednesday now has the indices open to move even lower ahead of the weekend. The break in Tuesday's lows essentially confirmed a continuation pattern on the weekly time frame and it is now the price levels from late last year into early this year that will serve as the next strong support level.

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.