Bank and brokerage stocks climbed higher on Wednesday after Wells Fargo (WFC) reported a 10% increase in its quarterly dividends to accompany its quarterly earnings report. WFC climbed 32.8% on the day. This kicked off a widespread rally in the market that led to the largest one-day point and percentage gains in the Dow Jones Industrial Average ($DJI) and S&P 500 ($SPX) since April 1. It was also the largest one-day gain for the Nasdaq Composite ($COMPX) since March 18.

The Dow Jones Industrial Average ($DJI) rose 276.74 points, or 2.5% on Wednesday. It closed at 11,239.28 after a steady trend day. 26 of the Dow's 30 components closed in positive territory. Bank of America (BAC) led the Dow, following the lead from WFC, and closed higher by 22.1%. The banking rebound was quite extreme. The KBW Bank Index ($BKX) rose 17% for its largest one-day percentage gain ever. Another Dow component, General Motors (GM) also had another strong session and closed higher by 16.4%. Oil-related stocks did not fair as well with crude continuing to slip off the all-time highs made just a couple of days ago. Chevron Corp. (CVX) was the greatest Dow decliner, down 3.4%. The Amex Oil Index ($XOI.X) fell 2.1%, while the Philadelphia Oil Service Sector Index ($OSX.X) dropped 1.1%.

Dow Jones Industrial Average ($DJI)


The largest decline intraday in oil-related stocks came at 10:30 am ET. The Energy Department reported that crude oil inventory increased by 3 million barrels last week. In contrast, a 3 million barrel decline had been anticipated. The reaction was decisively negative as crude and oil-related stocks took a rapid plunge on the heels of the news. Crude oil for August delivery fell $6.74 to an intraday low of $132, which is the lowest level in over a month. It managed to recover somewhat ahead of the close, however, and ended the session lower by $4.14, or 3%, at $134.60 a barrel.

The S&P 500 ($SPX) climbed 30.45 points, or 2.5%, on Wednesday and closed at 1,245.36. Financials as a whole climbed 11.1%. Consumer discretionaries also showed a lot of strength, up 5.2%. Some of the major companies in the consumer discretionaries are WMT, HD, DIS, CMCSA, NKE. Out of the S&P's 10 industry groups, only utilities and energy lost ground. Both fell 1.5%.

The Nasdaq Composite ($COMPX), led by the tech sector, scored the largest percentage gains out of the three major indices. It gained 69.14 points, or 3.1%, on Wednesday to close at 2,284.85. Sun Microsystems Inc. (JAVA) climbed 4.1% after posting better-than-expected earnings late Tuesday. Intel Corp. (INTC) also gained ground, albeit to a lesser degree, on Wednesday following earnings. It rose 0.9%. eBay Inc. (EBAY) added 4.5% ahead of earnings.

The two big names making the news on a daily basis again had substantial swings on Wednesday. Fannie Mae (FNM) closed higher by 30.8%, while Freddie Mac (FRE) gained 29.9%. Fed Chairman Ben Bernanke helped lift the shares as a result of testimony before a congressional committee regarding the government's plan to help ease their pain.

In other news, airlines closed strongly higher. While under pressure due to rising fuel costs, both AMR Corp. (AMR) and Delta Airlines (DAL) beat estimates although they still reported second-quarter losses. AMR rose 32%, while DAL climbed 26.6% on the day.

S&P 500 ($SPX)


On the economic front, the Labor Department reported that the consumer prices index rose an unexpected 1.1% in June. The core CPI, which excludes food and energy, rose 0.3%. This was the greatest upswing since January. Factory outputs, meanwhile, increased by 0.5% in June after declining 0.7% in April and 0.2% in May. The annual rate of industrial production is down 3.1% following this most recent quarter.

Nasdaq Composite ($COMPX)


The market was relatively unchanged by the opening bell on Wednesday despite moving higher the previous evening. The index futures had been selling off in premarket trade. This downside continued into the open for the initial 15 minutes of the day. The first correction period held well, however, and the market popped quickly at 9:45 ET. This marked a change of pace on the smaller time frames which was confirmed when the indices pulled back slowly into the 10:15 ET correction period.

At 10:30 ET the market jumped sharply on the crude inventory data. This rally, while brief to begin with, shifted the momentum by enough to begin the formation of a cup-with-handle pattern on the 15-minute time frame with the beginning of the cup at Tuesday's afternoon highs. The handle began with the 10:45-11:00 correction periods. The market pulled back slowly into the 5-minute 20 sma where they chopped around a bit before breaking higher to trigger the 15-minute setup.

The remainder of the session on Wednesday was spent in a choppy, yet steady, uptrend. A second correction took place from 13:00 to 14:00 ET, but the trend resumed for the final two hours of trade. The greater degree of overlap on a 5 and 15-minute time frame throughout the afternoon rally actually made this a more difficult market for daytrades since it offered very little opportunity in the form of correction patterns to catch continuation action and the greater degree of overlap meant that it would be easier for stops to be tripped only to have a setup continue with the original bias.

The main favorable aspect in Wednesday's trend was that by examining the prior day's rally, it made it more apparent that the market could have a greater degree of upside on the session since a main price resistance level would be the equal move as compared to that previous rally. This hit in the indices shortly before the closing bell. At that point the indices were also hitting resistance from moving average levels as well as prior highs from within the congestion of the past two weeks.

A number of big companies will be reporting earnings on Thursday. Merrill Lynch (MER) was up 13.3% ahead of its second-quarter earnings. JPMorgan Chase (JPM) is also due out on Thursday, as are Coca-Cola (KO), IBM Corp. (IBM), Google (GOOG), Microsoft (MSFT), and Advanced Micro Devices (AMD).

Although these have potential to influence the market strongly over the next two days, the market's larger bias is showing signs of initial confirmation of a larger daily correction. We still need a slower pullback on a 60-minute chart, but it's a start. The indices now have two waves of upside in play. This can lead to another pullback now, but as long as the momentum of that correction is slower as a whole then we should see some decent follow-through. The large volume at this week's lows also favors a larger correction since it has created an exhaustion move on the daily time frame.

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.