Good day! Wednesday was an interesting day for the market. Despite indicating a corrective bias heading into the opening bell with the formation of an AvalancheTM on the 15 minute charts in the premarket, only the Nasdaq-100 followed through on this bias. As you can see in the middle NQ chart below, the name that I gave to this particular strategy was very fitting. Once the 15 minute, 20 period moving average broke lower, the selling quickly returned the index to Tuesday evening's congestion zone with a nearly complete closure of its Wednesday opening gap.
The Dow Jones Ind. Ave., on the other hand, was forming the same strategy heading into the open as well, but instead of pulling quickly through the moving average, it had a slower downside pace from 8:40 a.m. ET into 9:45 a.m. ET, which increased risk for the setup. Ideally, the index will pull off the upper end of the trading range that is hugging the 15 minute, 20 sma, form a smaller base along the lower end of that channel, and then break lower. Alternately, it will form 2-3 clear upside channels within the larger sideways channel that are slower-than-average, allowing a trader to take a setup on the break lower out of the second or third slower pull higher.
Dow Jones Industrial Average (Figure 1)
The Dow Jones Ind. Average has the cleanest price action throughout Wednesday's session, while the Nasdaq was the most difficult. The five minute chart of the YM shows a number of nearly textbook setups throughout the session, but the Nasdaq's return from morning lows was choppy and followed by congestion along the session's highs from the 11:15 ET correction period into the closing bell, leaving little opportunity for daytraders. A number of individual stocks within the index, however, experienced nice intraday swings that offered those who go beyond the index futures ample opportunities for the session for bulls and bears alike.
Although there were exceptions - most notably in the Nasdaq - most of the strength for the session took place by that 11:15 ET correction period. By the early afternoon the indices were starting to struggle. The Dow had the strongest reversal pattern with a Momentum ReversalTM on the 5 minute time frame that triggered at 12:30 ET. It was followed by solid breakdown action that left the index selling off into 15:30 ET. This final reversal period, however, gave the market a break and the indices popped slightly into the closing bell.
S&P 500 (Figure 2)