Market Struggles to Digest Fed News

Good day! The market action on Wednesday was rather choppy following Tuesday's strong Fed day rally. The FOMC dropped lending rates to record lows on Tuesday and this propelled the indices higher into the closing bell. It also left them rather exhausted heading into Wednesday. The index futures had rolled over off higher in premarket trade and opened lower on Wednesday. They congested out of the open with the 5 minute 20 period simple moving average serving as resistance before giving way to further selling into 10:00 am ET.

Support held at the 10:15 ET correction period when the weaker Nasdaq came into support from Tuesday's mid-day trading range and the S&P 500 and Dow Jones Industrial Average came into their 20 period simple moving averages intraday. The correction period held well and the market climbed into the 5 minute 20 sma. At that resistance level they fell into a trading range, forming a 5 minute Phoenix buy pattern. Volume was light in the congestion and this supported an upside breakout bias. That breakout began into 11:45, but picked up momentum shortly after noon. The strongest intraday buying followed.

Nasdaq Composite ($COMPX)


The bulls remained in control throughout the first half of the afternoon, but the upside was accomplished in short-lived bursts, followed by a lot of price retracement. This slowed the overall pace of the buying and allowed for a stronger reversal pattern to form intraday going into the 14:00 ET correction period. The market began to hug the lower end of the uptrend channel and then broke lower out of the correction period. Earlier congestion served as support, but the congestion at the previous highs also served as resistance and a bearish range formed with a 2-wave short setup triggering on a 5 minute time frame into the closing bell.

Dow Jones Industrial Average ($DJI)


The Dow Jones Industrial Average ($DJI) lost 99.80 points, or 1.1%, and closed at 8,824.34. 24 of the Dow's 30 index components posted gains in Wednesday's session. The main losers were Citigroup (C) down 4.86%, Bank of America (BAC) down 3.18%, and General Electric (GE) down 2.96%. Leading the gainers were General Motors (GM) up 2.82%, Caterpillar (CAT) up 1.94%, and Verizon (VZ) up 1.64%. The S&P 500 ($SPX) fell 8.76 points, or 1.0%, on Wednesday and closed at 904.42. Crude oil prices took a dive when the Organization of Petroleum Exporting Countries (OPEC) announced that it felt that large production cuts would not offer much relief for falling prices, which are down over 70% since last summer. Crude oil surplus rose last week in part because prices have been cheaper for near-month crude than future delivery. January crude oil futures closed at $40.06 on Wednesday, down 8.1%. Gasoline prices are currently averaging $1.667 a gallon. The Nasdaq Composite ($COMPX) shed 10.58 points, or 0.7%, to close at 1,579.31. Apple (AAPL) weighed heavily on the index with a 6.5% price decline on speculation over the health of CEO Steve Jobs after news that he would not be speaking at the MacWorld trade show in January. It accounted for about half of the Nasdaq-100's losses. 51 of the Nasdaq 100's stocks closed with gains, but the index still fell 1.4%.

S&P 500 ($SPX)


The momentum reversal pattern that I've described over the past several days and drew on the Nasdaq on the daily time frame is still developing well. The slow upside on Wednesday off intraday lows showed that the market is still uncertain whether or not to hold the daily lows and the risk remains for a third test. The monthly support zone, however, remains very strong. A third low would actually be helpful in turning the market more sharply higher off the support than an attempt to continue to hold the current low.