Well, we got our additional upside finally on Wednesday! That was the good news and those who have been holding longs all week were no doubt very happy with the day. Unfortunately, this upside initially came in the form of an extreme gap in the indices. As I've discussed numerous times in the past, extreme gaps in the indices have a VERY difficult time holding the gaps, let alone continuing in the direction of the day. Instead, they prefer to close the gap zone on the day of the gap itself.

On Wednesday, to give the bulls some credit, they did a fair job of holding things up throughout the beginning of the session. While the market managed to hang onto most of its gains, it was again extremely choppy. After repeated attempts to break the highs of the congestion, the market fell quickly lower when the 11:00 ET correction period hit.

Even though it tried, the market simply could not take back the upside momentum to regain control. The indices did move back into highs and even into slightly higher highs shortly after 12:00 ET in the Dow, but ultimately the slower upside wore the bulls down and a second and more extreme selloff began only a few minutes later. Within half an hour all three of the major indices were at new intraday lows. The Nasdaq Composite found support at its 15-minute 20 sma, while the S&P 500 closed the gap zone by pulling into the afternoon highs which occurred just prior to the end of the day on Tuesday.



After a brief respite, the market again headed lower into 13:00 ET. The correction off the 12:30 ET lows was not long enough to sustain as significant of a move lower, so the indices only barely penetrated the previous lows and did so at a much more gradual pace than the initial afternoon decline. Shortly before 13:30 ET they were again heading higher and climbed steadily back into the previous highs. While the reversal periods did not hold very well on Wednesday, the support and resistance levels did. This back and forth action continued throughout the remainder of the daily with nice pivots until around 15:00 ET. At that time the volume dropped off a bit more as the indices pulled back slowly. This change in momentum was all the market needed to make a break to new highs and many stocks closed near their intraday highs, while the overall market came within a few ticks of doing the same.



Among the top intraday and daily gainers on Wednesday were Blue Coat Systems Inc. (BCSI), Dryships Inc. (DRYS), and Bally Technologies (BYI), all of which came to my attention early into the open due to their favorable upside gaps and corresponding daily charts that supported a great deal of room for further upside. BCSI, however, greatly exceeded my expectations. Other notable gainers included China Mobile Limited (CHL), McDermott Intl. Inc. (MDR), Apple Inc. (AAPL), Express Scripts Inc. (ESRX), and Sina Corp. (SINA).

By the end of the session, the Dow Jones Industrial Average ($DJI) had gained 145.27 points (1.1%), the S&P 500 ($SPX) gained 16.95 points (1.17%), and the Nasdaq Composite ($COMPX) gained 31.50 points (1.2%). While they didn't get far past the early morning trading, MGM Mirage (MGM) and Nymex Holdings (NMX) were both also at the top of the gainers lists. MGM climbed 8.9% on news that Dubai World would be acquiring a 9.5% stake in the company and NMX rose 6.1% after announcing talks with potential investors and its intended cost-cutting measures.



Heading into Wednesday's close, the market still remains more bullish. I wouldn't bet on the rumors circulating that this is all there is to it and that the market is going to again be able to break to new highs on the year. This is the second flush already on the weekly and monthly time frames and each time it becomes more and more difficult for the bulls to regain control. It is not looking, however, that we are going to get another extreme downside move beginning just yet, but other than swingtrades and daytrades, I am investing very little in the market at this point and my focus on the larger time frames is merely managing the ever dwindling position trade positions I still have open.

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.