Good day! Trading was tough on Thursday in the indices as a whole. After a strong uptrend on the 15 minute charts with three waves of buying into Wednesday afternoon, the market needed a chance to recover. As I mentioned yesterday, the momentum intraday had not really turned over to favor a strong decline so that forced the market to correct primarily through a trading range. The Nasdaq Composite and S&P 500 did manage a longer correction into the open and then a fourth wave of upside into the 11:00 ET reversal period, but the Dow failed to play along and displayed a great deal more weakness out of the open despite gapping higher at the start of the session. GM, PG, SO, WMB and INTC all posted strong declines by the end of the day.

Typically when the market has three waves of buying, a slightly longer correction, and then a fourth move, then that trend will break. This is what started to happen as the morning came to a close. The indices had held the 11:00 ET correction period and then began to pull in. The Dow formed a head and shoulders pattern on the 5 minute charts, while the S&Ps and Nasdaq Composite also each formed continuation patterns on the reversal. The S&Ps had put in a very slightly higher high, creating a 2T double top, while the Nasdaq had pulled lower, then based, creating a small Avalanche. Even though the pace on the downside was strong, the moves didn't last for more than a couple of minutes. The result was a number of small bear flags on the 1 minute time frame, each with a strong drop, but the overall pace of the entire retracement into lunch was much more gradual than the previous buying.

Since the market had already exhausted the uptrend, the indices tried to reverse into the afternoon. The indices hugged the 15 minute 20 sma throughout the afternoon. Once the market popped off their 13:30 ET low that move was too strong to complete a momentum change for a breakdown and the indices held that trend channel along the support into the close. The slower pullback from 11-12:30 ET was just not enough of a change in momentum to support another wave of selling. This leaves things pretty much up in the air heading into Friday, so one of the best things to do in such a case is draw a trend channel along the highs and lows of Thursday afternoon move from 12:30 ET onward and often the market will then start hugging the lower trend line if it's going to break lower, but if the upper trend line breaks then the upside momentum is likely to pick up quite a bit intraday.







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.