So, that train I was talking about earlier this week? Well, it turns out that the vehicle stalled on the tracks was a full tankard truck of explosive materials and it created a bit of a chain reaction... Yikes! The indices gapped down sharply again on Thursday, continuing to display underlying weakness. As on Tuesday, the Nasdaq made a strong effort to close that gap and managed to do so within the first 45 minutes of trading, while the S&P 500 and Dow Jones Industrial Average remained weaker, holding their 5 and 15 minute 20 simple moving averages as resistance.

The continued selling in the market didn't begin right away. Instead the intraday momentum needed to turn over a bit more. It did so between 10:30 and 11:00 ET by hugging the lower intraday trend channel and moving only slightly higher on declining volume. When the 11:00 ET correction period hit the bottom dropped out. Volume increased sharply as the market fell quickly to new intraday lows.



The market found exhaustion and support around 10:30 ET and rounded off a bit in order to form two small waves of upside on the 1 minute time frame heading back into the 5 minute 20 sma. As you may recall from previous my ramblings, correction moves often take the form two waves, whereas larger trend moves are more likely to take three. The second wave of buying hit highs at the 12:00 ET reversal period and the market again turned lower.

The second selloff was similar to the first and stalled just after 12:30 ET. It also experienced a similar correction, pulling up twice on the 1 minute and again into the 5 minute 20 sma resistance before rolling over a final time around 13:15 ET for a third wave of downside into the early afternoon. The volume at this time was dramatically higher than average and even though the market exhausted at about 14:30 ET, it put in a slightly lower low at about 14:50 ET to create a small 2B setup on the 2-5 minute charts.



This third wave of selling on the 5 and 15 minute charts took the market smack into that 50 day sma we were targeting on the daily charts. The S&P 500 had already surpassed our 100 day sma target within its mid-day decline when it stalled at it, yet still broke through. The Nasdaq support, however, was hitting at the same time as the zone of the previous daily lows in the Dow and this combination of the daily support with the intraday trend exhaustion was enough to have me finally feeling that the worst of the selling at least was over intraday.



At one point during the day the Dow Jones Industrial Average ($DJI) was down nearly 450 points, but by the closing bell it had bounced back a decent amount compared to the larger decline and ended up losing 311.50 points (-2.3%) to close at 13,472.57. Alcoa Inc. (AA) alone fell 7.1%, while Exxon Mobil Corp. (XOM) lost 4.9%. Citicorp. Inc. (C) also fell a bit harder than the overall index to lose 2.8% on the session.

By the end of the day the S&P 500 had also lost 2.3%, or 35.43 points in this case. It ended the day at 1,482. The Nasdaq Composite experienced the greatest reversal into the close, taking back a huge chunk of its intraday losses to close down 48.8 points at 2,599. This was a large improvement over its session lows of 2563.8. Apple Inc. helped out a bit with gains of 6.4% after announcing a 73% profit increase on its Macintosh brand computers.

The volume in the market during this massive decline reached 2.8 billion shares on the NYSE and about 3.5 billion on the Nasdaq.

After a strongly trend week like this into these daily support levels, I am expecting to do more pivot type of trading on Friday while folks ponder just how wise it is to hold their battered positions into the weekend. This will more easily create trading range activity, although volume is likely to remain a bit heavy despite it being a Friday.

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.