Despite options expiration, Friday was a rather tame day in the market. True, moves on 5-minute time frames and smaller were extremely choppy, but the indices did a superb job of holding 15-minute and larger time frame support and resistance levels. Just as importantly, they experienced a number of exceptionally smooth movements on a 15- and 30-minute time frame intraday.

Going into the morning on Friday I was looking for some additional follow-through on Thursday's rally. This came in the form of an upside gap which extended the rally and created exhaustion into the opening bell. The result was a correction off highs that was a bit sooner than I had been expected. Nevertheless, the price action coming out of the gap was favorable for continued downside since the rally itself, while strong, was much weaker overall than Wednesday's selloff.

Within only 15 minutes or less the indices had all closed their morning gaps. 9:45 ET is the first correction period of the day and the market attempted to correct somewhat at that time. The 10:00 Michigan Sentiment data loomed. As soon as it hit, indicating the weakest sentiment since June 1980, the sellers returned. The University of Michigan/Reuters preliminary U.S. consumer sentiment had dropped to 59.5 in May.

Dow Jones Industrial Average ($DJI)


The morning descent found support once again into 10:15 ET. A level of congestion followed before the market broke down a final time on Friday morning. The 11:00 ET zone was the next correction period following the market breakdown, but the momentum of the selloff into that time period was still stronger than average. The indices compensated by heading slightly lower into 11:15 ET, which is another very common time for morning reversals to take place going into the afternoon. The Nasdaq held this low perfectly and the other indices came quite close.

The Nasdaq Composite led the bulls into the afternoon. An initial stall in the upside took place into noon, but after only about 15 minutes the bulls returned and took the indices to the next intraday resistance levels from early price congestion and highs on 5- and 15-minute time frames. Shortly after 13:00 ET these levels came together. The 15-minute 20 sma in some of the indices combined with prior 15-minute pivot highs over the last several trading days to push the indices into a larger correction on a 15-minute time frame that lasted until 13:45 ET.

RUSSELL 2000 ($RUT)


The most clean-cut pattern in the market in mid-afternoon on Friday took place in the Russell 2000. It had been the weakest of the indices and rally to its 15-minute 20 sma in the early afternoon while the other indices were pushing though it. It then hugged that move average perfectly on declining volume. The pattern which formed is one that I call a Phoenix since its a buy setup coming off lows when the market breaks free. A steeper version took place in the Nasdaq coming out of the 14:00 ET correction period. The Dow, Russell, S&P, and Nasdaq all experienced continuation patterns that were very consistent with the early afternoon moves. The similar pace made it very simple to locate the upside resistance. By simply measuring the first move off lows and applying it to the continuation move, it created a price resistance level that all four indices hit just before 15:30 ET, leading to another correction into the closing bell.

S&P 500 ($SPX)


The Dow Jones Industrial Average ($DJI) dropped 5.86 points (-0.05%) on Friday, ending the week at 12,986.80 with a weekly gain of 1.9%. The top losers were General Motors (GM), which lost 2.59% on Friday, Citigroup (C), which fell 2.57%, and American Express (AXP), down 2.37%. Chevron (CVX) gained 1.92%, while Exxon Mobil (XOM) rose 1.5% to accompany the rally in crude futures to highs of $127.82 a barrel. Fuel prices have hit a record average of $3.79/gallon for regular unleaded.

The S&P 500 ($SPX) closed only slightly higher on Friday by 1.78 points to close at 1,425.35. The gain on the week was 2.7%. The Nasdaq Composite ($COMPX) produced the strongest gain on the week as a whole, up 3.4%, although it fell 4.88 points on Friday to close at 2,528.85. Among other top gainers on Friday were Level 3 Communications (LVLT) (+8.23%), Starbucks (SBUX) (+6.10%), Garmin Ltd. (GRMN) (+5.97%), Rowan Cos (RDC) (+6.52%), XTO Energy (XTO) (+6.34%), and BMC Software (BMC) (+6.09%). Among the top losers on Friday were Apollo Group (APOL (-4.15%), UAL Corp (UAUA) (-3.96%), Keycorp (KEY) (-5.46%), and Regions Financial (RF) (-5.39%).

Nasdaq Composite ($COMPX)


After creeping higher throughout Friday afternoon, despite the equal move resistance, there is still the potential that the indices will experience a third wave of buying on the 15-minute time frame that would lead to the creation of an equal move as compared to the rally on Thursday. This would need to take place relatively early in the day on Monday and would lead to a third high on the Nasdaq 60-minute charts and a potential retest of highs on the Dow. The pace is still slower than the descent and this has been the case for well over a week. This means that the market will have an easier time with corrections or pullbacks off the highs. So, upside in the morning will once again have a substantially higher risk of a strong reversal.

As the indices continue to defy larger resistance levels, odds increase that the market will push into the price congestion from last November and December before correcting on those time frames, so for the time being I'm still mainly playing the selloffs as daytrades with the occasional overnight hold as opposed to longer swing or position trades.

Toni Hansen is President and Co-founder of the Bastiat Group, Inc., and runs the popular Trading From Main Street. She can be reached at Toni@tradingfrommainstreet.com.