Good day! The market put in another fairly wide range day once again on Thursday following continued fallout overnight from the Fed commentary on Wednesday. The index futures had congested afterhours and into the early-morning hours on Thursday, creating a very typical trading range for a continuation breakdown. Nothing on the global scene touched it. Ahead of the open the bears began to make their move and the breakdown accelerated into the opening bell.
In yesterday's outlook portion of this column, we were looking for the market to continue its 60-minute trading range with the strong possibility of a further test of lows and even the potential for a slightly lower low before we see a larger daily correction. This placed favor in the hands of the daytraders. Although we didn't get the slightly lower low, at least not yet, both the S&P 500 ($SPX) and Dow Jones Ind. Average ($DJI) established firm retests of prior lows early in the morning.
Dow Jones Industrial Average
The pace of the morning selloff on Thursday shifted between 10:15 am ET and 10:45 am ET. The market went for another test of lows, but the momentum was slower with greater overlap from bar to bar on the 5 minute time frame. Both the S&P 500 and Dow hit very slightly lower lows, which created a type of bear trap called a 2B. The Nasdaq also formed a reversal pattern at this time with a double bottom on the 5 minute time frame. This triggered the first strong intraday setup of the day on the 5 minute charts heading into 11:00 am.
The recovery off morning lows was the strongest in the Nasdaq due to its greater weakness earlier this month that left it more extended. Three waves of upside on the 2 minute time frame exhausted the recovery on the smaller time frame heading into noon, but a slightly continuation pattern was followed with a second wave of buying on the 5 minute charts into 13:45 ET.