Good morning! The market had a pretty strong downside bias on Thursday. It began with a strong gap down into the open that came into lows from the prior day in the NASDAQ Comp. and SP500 and prior 15 minute lows in the Dow. This served as support initially, but we saw a bit of a continuation until a 1-2 minute exhaustion move spiked volume a bit into 10:00 ET as the SP500 hit its 15 minute 200 sma support.

Despite the obvious support, the volume was not strong enough to flush out all the sellers. We had seen the bias intraday changing with the stronger downside moves within the range at highs. This time the correction off the support was even more gradual than before. It took nearly three times as long to make back early morning losses, showing a bearish bias.

The decent size of the gap, followed by the weak reaction to the support made for a very slow morning. It meant high risk trading in the indices since the range was so narrow. Then, most of the market gainers on the day in individual equities were on large upside gaps with earnings. There weren't a lot of them and those that opened well had to deal with the very weak market, holding them in. NYSE gainers overall faired better than those in the NASDAQ, but still didn't offer a lot of intraday opportunities for breakouts.

As the SP500 closed in on its 15 minute 20 sma and 5 minute 200 sma back at morning highs, the resistance held, leading to the only strong move of the day following the gap. The slower upside pace gave way to a very strong breakdown into noon. It lasted for about half an hour to 45 minutes, stalling for a few minutes halfway, but continuing until the indices had put in an equal move on the 15 minute charts as compared to the prior selloff right into the 12:00 ET reversal period. This made it likely that we would see another larger correction on the 15 minute charts into the afternoon.

As you can see on the 5 minute charts, the indices hit and held the 5 minute 20 sma. This led to a slightly lower low at 13:30 ET before we had seen a greater 15 minute correction. It made for a 2B reversal pattern intraday, but since the daily charts were still so extended on the upside, the reaction out of the reversal pattern was not a strong one. It was enough to pull the market back up into the 15 minute 20 sma resistance though. Since the volume was again light and the upside pace more gradual, the moving average held well, leading to a retest of lows, albeit a slower move.

For Friday I think we'll continue to see corrective action from this week's highs as the NASDAQ reacts to the retest of prior weekly highs. I am watching for a 60-120 minute Head & Shoulders pattern. This would mean a longer correction to Thursday's mid-day lows, so we'll need to see how those hold going into the morning. We are heading into the weekend, so I think that a lot of people who have been long are going to be a bit more concerned about holding onto positions that are starting to correct. I will look to be particularly cautious on longs since the intraday directional bias is still very bearish, but we do have room for that shoulder of a larger intraday Head and Shoulders that can create some upside in the morning. It will depend a lot on the premarket jobs data, which also contributed to the slow afternoon action on Thursday.

Updates: VAR from last the 20th $38 around hit new highs the 27th at $40.70 before closing on the day with a base at highs ahead of earnings for swingtraders. For a larger position trade the weekly is still looking nice and I want the 20 week sma to hold as support. NEW, which we were watching earlier in the week for a weekly breakout, took a hit on earnings last night so we'll have to see how it follows through on that news in coming days. I am watching HSP for a breakout on the daily and weekly charts. I expect that one to take a few more weeks to develop, however, since the 20 week sma is still catching up to the base. AEP and GP also have potential for upside breakouts on the daily charts. Both look like they might need a few weeks though for the bases to shape up enough on the weekly charts.

Economic Reports and Events
Aug 05: Average Workweek for Jul (8:30 am), Hourly Earnings for Jul (8:30 am), Nonfarm Payrolls for Jul (8:30 am), Unemployment Rate for Jul (8:30 am), Consumer Credit for Jun (3:00 pm)
Aug 08: -
Aug 09: Productivity-Prel for Q2 (8:30 am), Wholesale Inventories for Jun (10:00 am), FOMC policy announcement (2:15 pm)

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stocks' earnings dates before holding a position overnight. (A) = Earnings after the close, (B) = Earnings before the open, (?) = Earnings time not specified at the time of this writing
Aug 05: CAH (?), CYT (A), L (B), NOV (B), PRCS (B)
Aug 08: AL (B), ACF (A), CNP (B), XEC (?), CRAY (4:00 pm ET), CVTX (A), DPH (B), DNDN (?), DYN (B), FLR (A), HMY (?), HRP (B), LAMR (B), NT (B), PTV (A), POM (?), PXP (?), SCLN (?), PKS (A), SONS (A), STKL (A), UPCS (A), VC (B)
Aug 09: APCS (A), AQNT (B), BBI (?), CVC (B), CE (B), CBB (B), CSCO (A), CCU (B), CDE (B), DISH (?), ESCT (A), EIX (?), EP (B), FLYI (?), GEMS (B), GKIS (B), IIP (A), KFX (?), KG (B), LGF (A), LOUD (?), MCIP (B), TMR (?), NRG (B), NTLI (02:00 am ET), PA (B), PNRA (A), RL (B), SIMG (B), MAY (?), PGR (B), TLCV (B), URI (?), DIS (A), XOMA (A)

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.