I have one word to describe Thursday's session: Yikes! Ok, so we were looking for more downside ahead of the weekend, and we weren't looking for support until the price congestion from late last year and early this year hit. Nevertheless, seeing it follow-through with our bias and the wickedly volatile trading that accompanied it was quite something!

The market began the day with a downside gap into the open. This was a logical extension of Wednesday's late-day selloff and I took it as more of a non-event. The gap quickly closed heading into the 9:45 ET reversal period, but when that resistance hit the sellers returned. The momentum which accompanied the morning descent was comparable to that of the prior afternoon and the trend channel already in play at that time held. Two waves of intraday selling led to a pivot low at about 10:30 ET.

This 10:30 ET low was the first level intraday where the market had a chance of holding and establishing a larger correction off lows on the 15-minute time frame. Even though the market did bounce here, however, the pace on that bounce was still more gradual than the morning decline. In order to really gain momentum on the upside we would need to see at least some sort of rounding off at lows to allow that momentum to turn over. Instead the market moved slowly higher on a break in the 5-minute 20 sma after a brief stall and ended up forming a bear flag on the 15-minute charts.



A large intraday downtrend followed the 15-minute bear flag on the 5-minute time frame. The trend began coming out of the 11-11:15 reversal zone and an initial move took the market into morning lows. The first continuation took place at noon after a base on the 5-minute charts. Volume declined throughout the base to uphold the bearish bias and increased once the support gave way to confirm it. A second correction leading into a third wave of selling formed into 12:30 ET. Once again the volume declined throughout the base at lows and once again increased when the base broke lower.

Trend moves often last for three waves, so this paved the way for an afternoon correction off the mid-day lows. The momentum was still quite extreme to the downside, however, so an initial stall at support at 12:45 ET had a rough time holding and another test of lows into the 13:00 ET reversal period gave the market that rounded low that it was lacking earlier in the session. It established a very slightly lower low to form a 2B type of double bottom and the reversal period itself also pointed towards an afternoon reprieve.

Once the buying got under way, it did so very quickly by popping up to the 5-minute 20 sma in a matter of minutes. Instead of forming any strong 5-minute base and continuation, the market only stalled at the sma for about 15 minutes before it continued the new intraday uptrend. This created a trend channel not unlike that of the prior afternoon's selloff. Corrections within the trend move itself only allowed for setups on a 1 minute time frame and not on anything higher. The rally lagged a bit in the Nasdaq, but the S&P 500 and Dow Jones Industrial Average maintained an overall pace on the upside move that was more rapid than the decline and made it likely that the indices would hold the 13:00 ET lows throughout the remainder of the session.



After losing about 340 points at lows in the Dow, the market regained the majority of the ground it lost as it rallied into 14:15 ET. The indices had a bit of an exhaustion move on a 1 minute time frame (hard to see here), where the pace spiked. This is common at highs and the indices pulled sharply into the lower end of the uptrend channel. Upon breaking out of the channel, the market began to hug the 5 minute 20 sma, forming an Avalanche setup which triggered in the final hour of trading. The afternoon selling nearly took the market back into its mid-day lows, but the support held as the market hugged its 15-minute 20 sma and then turned around again to rally into the close.

Thursday was the highest volume day of the year to date. Amazingly, the Dow ($DJI) managed to close with only a loss of 15.69 points. JP Morgan Chase (JPM) was one of the top gainers on the day, adding 5.7%. Citigroup Inc. (C) also had a great day, adding 4.3%. The S&P 500 ($SPX) had such a strong recovery that it added 4.57 points before the close, while the Nasdaq Composite ($COMPX) lost 7.76 points.



Thursday was an exhaustion day for the market. I expect to once again see some corrective action off the daily support heading into next week for a few weeks, but the odds are again high that such a correction will be choppy with more overlap from day to day. The 10- and 20-day simple moving averages will serve as resistance. I am expecting to take Friday very slowly. It has been an extreme week and folks will be positioning themselves ahead of the weekend. My focus will be on scalps and shorter time frame daytrades.

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.