Equity indexes continue strong start to 2011

Good day! The market had a strong session once again on Wednesday as the index futures continued to bounce back off premarket lows. Those lows took place at approximately 6:45 a.m. ET when a retest of an earlier low broke it just slightly and with more gradual momentum. This created a 2B buy strategy ahead of the open and led to strong upside even before Wednesday's session began. The indexes struggled slightly at price resistance around the time of the open until approximately 11:15 a.m. This was particularly true of the Dow Jones Ind. Average, but when the morning highs broke the trend quickly regained momentum.

Dow Jones Industrial Average


The Nasdaq's trend was the strongest throughout the morning. It faced minor resistance around 10:15 a.m., but easily pushed through to new highs and continued to rally throughout the morning. The indices began to struggle with the rally just before noon. By this point the market was already very extended on the 15-minute time frames, which are shown in the middle charts, and both the S&P 500 and Nasdaq-100 were testing Monday's highs. This price resistance held very well and the pace of the price action began to shift over noon.

All three of the major indices had minor corrective patterns form mid-day. In the S&P 500 and Dow those patterns began with Momentum Reversals that triggered into 13:00 ET. In the Nasdaq it was a slightly higher high that created a trap I call a 2T. None of these setups had strong follow-through. When examined on the 15 minute time frame, the rallies were simply too extreme to easily allow for another rapid reversal. It also meant, however, that they were too extended to create strong continuation patterns before the end of the session. The result was a trading range that favored scalps to the downside throughout the remainder of the session.

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