Wednesday was one of those days in the market that most daytraders dream about. In an environment where the average volume has been on the light side and a great deal of intraday activity has been choppy, Wednesday's session stood out. No, it didn't have a strong trend higher. In fact, it ended the day close to where it began. What it did have, however, were strong and precise swings on the 5 minute time frame with highly regular trend development.
Dow Jones Industrial Average
The index futures were weak in premarket trade on Wednesday. They had recovered some of the losses that took place into Tuesday's closing bell afterhours, but rolled over off highs heading into Wednesday morning. Strong momentum on the downside took over at about 3:00 a.m. ET and the futures market was favoring further downside into Wednesday's opening bell. They had created a two-wave correction off lows beginning at about 4:00 a.m. ET, but managed to pop on the second correction into the opening bell. This provided a rather unexpected close of the morning gap, but the S&P 500 index futures held the resistance at the midnight highs and the indices quickly reverted to their previous bias.
The intraday action was very smooth throughout the session. Once the downside bias kicked in, the S&P 500 and Dow Jones Industrial Average both developed very textbook trend moves on the downside. Three waves of selling into the 11:15 a.m. ET correction period brought the downtrend to completion, but the pace of the selloff meant that a further shift in momentum would be necessary to see price recovery in the afternoon.
The solution was a double bottom. After pulling higher into noon, the market pulled back steadily for a retest of the lows before offering a steady, two-wave correction higher between 13:00-15:00 ET. The trend then continued afterhours with three steady pushes higher into 3:00 a.m. ET on Thursday morning. Once again, this slowing momentum into this early-morning correction period resulted in a strong breakdown and the market is set to open lower on Thursday.