Financial data hit stock market hard

The slowdown in the momentum of the morning's selloff set the tone for the afternoon recovery that followed. In the S&P 500 and Dow Jones Industrial Average, a strong reversal pattern I call a Momentum Reversal took place. This happens when a sharp selloff is followed by a series of slightly lower lows that create a type of bear trap. It triggered a buy when the downtrend channel broke to the upside. This took place heading into the 13:00 ET correction period.

S&P 500 (Figure 2)

The Nasdaq's reversal pattern was different than the pattern that formed in the other two indices, but it was a strong one. The Nasdaq-100 established three waves of selling throughout Wednesday morning on the 5 minute time frame, which exhausted the downtrend. A longer correction followed into noon before a final flush into the 13:00 ET correction period. This final flush hugged the zone of the 5 minute 20 sma and led to only a slightly lower low on lighter volume than the selloff into the morning low. All of these point to a reversal pattern in the making. The reversal itself took place all of the day's losses, but ran into resistance around 14:30 ET, leading to a slight loss once again prior to the closing bell.

Barring further disappointing data, however, the market is at enough support that there is room for further recovery action on the 15 minute time frame heading into Thursday. The data is still going to serve as the leader this week, however.

The Dow Jones Industrial Average ($DJI) ended the day with a loss of 83.93 points, or 0.66%, and closed at 12,723.58 on Wednesday. Eight of the Dow's thirty index components posted a gain on Wednesday. The top performers were Intel (INTC) (+1.95%), Hewlett-Packard (HPQ) (+1.51%), Procter & Gamble (PG) (+1.16%), and Microsoft (MSFT) (+0.98%). The biggest losers were Caterpillar (CAT) (-2.21%), General Electric (GE) (-1.79%), DuPont (DD) (-1.73%), and Chevron (CVX) (-1.40%).

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