The market made quite a recovery on Friday after selling off sharply in the previous session. Given the extent of Thursday's decline, it was rather remarkable that the overall market still managed to post gains for the week as a whole. By the end of Friday's session, the Dow Jones Industrial Average ($DJI) had reclaimed 77.96 points (+0.6%) from the previous day's losses to end the session at 13,093.1. The gain on the week amounted to +0.2%. The S&P 500 ($SPX) took back 7.39 points (+0.5%), adding 0.5% to the week with a closing price on Friday of 1,561.80. The Nasdaq Composite Index ($COMPX), led by strength in the technology sector, rose 33.48 points on Friday (+1.2%) and added 0.9% on the week by closing at 2,805.68.

Despite the gains, however, the upside volume in the market was rather light compared to the past several months. On Friday volume on the New York Stock Exchange came in at about 1 billion shares. Advancers outpaced decliners by 5 to 3. On the Nasdaq a little under 2 billion shares exchanged hands and advancers beat out decliners by 9 to 5. Since Friday was a trend day with primarily higher highs and higher lows, this showed a bit of hesitation. The fact that the trend weakened dramatically as the day wore on, as we will soon see, also made it more difficult for the bulls, although they refused to give way to another afternoon of selling and finished strongly.

Several economic reports were released on Friday which played a bit of a roll in the intraday trading activity. The first, and most influential, of these was the 8:30 ET producer price data. The Labor Department reported that U.S. producer prices climbed by a greater-than-expected 1.1% in September, while core inflation increased 0.1%. This meant that the greatest gains were in higher energy and food prices. The overall PPI increase was the largest since this past February with energy prices moving higher by 4.1% last month and wholesale gasoline prices jumping 8.4%. Food prices rose by 1.5%. One the the areas where prices declined was when it came to passenger car prices, which dropped 1.8%.

At the same time as the PPI data was released, so was additional data on September retail and food sales. U.S. retail sales rose 0.6% in September, beating expectations of a 0.3% increase and putting a damper on expectations for aggressive rate cuts on the part of the Federal Reserve. The result was that the Treasury bonds fell on Friday, sending yields higher. The 10-year Treasury bond fell 11/32 to 100 17/32, yielding 4.683%. The 30-year bond shed 21/32 to end the session at 101 14/32 with a yield of 4.908%.

Additional data released later in the session showed a 0.5% increase in retail inventories as reported by the Commerce Department. On the other hand, Reuters and the University of Michigan reported a drop in consumer sentiment from 83.4 in September to 83 this month, whereas analysts had expected the consumer confidence rating to climb to 84.5. This is the lowest it has been since August of 2006 and reflects concerns over the rising food and higher energy costs in particular.



After just chopping around in the premarket and going virtually nowhere, the indices began to move higher following the 8:30 ET data. While the Dow and S&Ps stalled out of the open, however, after just a few minutes of indecision the Nasdaq was making its way higher. The Dow and S&Ps joined in following the 10:00 ET data and the market continued higher into the 10:15 ET area. The Nasdaq had a bit more trouble pulling back off the highs, but all three indices made their way into the 5 minute 20 period simple moving average zone on declining volume. It hit at about the 10:45 ET reversal period and by 11:00 ET the market was again moving higher.



As the morning progressed, the indices hit higher highs intraday. This continued until the S&Ps hit Wednesday morning highs around 11:30 ET. A second correction on the 5 minute time frame followed into noon. The selling on this second pullback was a bit stronger than the first in the Nasdaq, but still comparable to it in the S&Ps and Dow. Once again, however, the volume dropped off as the pullback formed, indicating that the bears were still not feeling that aggressive. Often trends such as this will form with three waves of upside before the lower channel breaks. This meant room for the third high to form into the early afternoon. It hit highs with the 13:00 ET reversal period and the pullback took the indices into support at the 15 minute 20 sma and a lower low intraday.

In order for a trend reversal to confirm, not only must it have a lower low, but a lower high as well. The market had a more difficult time with this second part of the criteria. The buying off the support at 13:30 ET was simply too strong to begin with and the indices quickly returned to the mid-day highs. The momentum did attempt to turnover again into the final hour of the day by slowing at the mid-afternoon highs as the indices held prices resistance from intraday highs on Wednesday, but the final move lower still had no volume confirmation.

After just a few minutes of rapid selling the momentum again stalled into the 15:30 ET reversal period and this slowdown again led to another more rapid move off support, which in this case was the previous 5 minute lows. Essentially, even through there were some very slightly higher highs, the market spent the afternoon in a trading range, but pushed through the upper end of that range into the close and into afterhours trading.



Despite the upside in the indices, most of the top gainers on the session did not get there by trending higher throughout the day and most of the top percentage gainers in the Nasdaq were not stocks I run into very often. The top ten symbols in my Nasdaq % gainers scan at the end of the day were BEAS, TIBX, GIGA, IFON, JASO, HLYS, INNO, URRE, MBLX, and CALM. BEA Systems (BEAS) made the list thanks to a buyout proposal by Oracle Corp. (ORCL). It gained 5.20 points, or 38.2%, by the end of the day. Most of this upside was in the form of the gap. Innovo Group, Inc. (INNO), which is not a stock I can recall ever hearing of, is a cheap little apparel and accessory company that announced plans for a merger with JD Holdings. It rose $0.14 (+8.7%).

Some more popular names topped the NYSE gainers list. These included GM, RIO, STV, AMR, EK, FXI, GRA, SWY, TDC, and TRA. General Motors Corp. (GM) was one of the few stocks to trend strongly throughout the entire session. It gained 2.65 points, or 6.6%, by the end of the day. Companhia Vale do Rio Doce (RIO) came in at a close second with gains of 1.82 points, or 5.3% gains.

Among the day's losers were Coldwater Creek Inc. (CWTR), which fell 28.1% after it lowered its forecasts; CalAmp Corp. (CAMP), which lost 11.2% following earnings; and Beazer Homes USA Inc. (BZH) after it reported that it will be required to restate financial results due to an independent internal investigation. Other top losers were ATI, CAPA, SHRP, CHS, LDK, LEN and LDK.

I am not feeling very strongly about either side of the market at this point for longer-term potential, other than the fact that Friday's buying has held off the bears for the time being. The bulls triggered a 15 minute buy setup into the close and I expect this to play out into Monday morning, but the highs from Thursday will serve as some strong price resistance and it will be very easy for the market to fall into a longer congestion with Thursday's highs and lows holding as resistance and support. The Nasdaq will have an easier time making a slightly higher high on the 60 minute charts next week than the Dow and S&Ps will.

At this point the market has not developed enough in terms of the momentum within that potential range to indicate the most likely direction for it to break. I was feeling a lot more bearish heading into Friday's session, but quickly reversed my bias intraday early on in the session. Given the extent of Friday's bounce, there is no immediate sell pattern forming yet intraday, but we can still easily see the bears return during Monday morning's trading for another decent intraday decline off Thursday's highs.

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.