The market was hit hard prior to Friday's open. U.S. payrolls fell by an unexpected 63,000 in February, making it the largest drop since March 2003. Economists had been expecting an increase of 20,000. Meanwhile, December and January payrolls were revised lower by 46,000. The unemployment rate also caught economists off guard, falling to 4.8% in February. Further pressure on the jobs market was brought about by the slow growth of average hourly earnings, which rose 5 cents to $17.80/hr, less than inflation. The indices plunged lower on the news and opened with a strong gap down, extending Thursday afternoon's closing selloff despite the Federal Reserve boosting liquidity ahead of the data.

Typically, when the market suffers an extreme loss in afterhours or premarket trading, leading to an extreme gap, then that gap will attempt to fill. It usually begins to do so within the initial 15 minutes of the day, often directly out of the opening bell. When the 15 minute highs hold, however, and the market is setting up a pattern on a larger daily time frame, such as on February 29th, then there is a greater chance that the gap will not fill. Since the markets were already selling off for over a day and a half by the time Friday's gap took place, and had been increasing momentum on the downside into the prior day's close, it made it easy for the gap to exhaust the market and allow it to hold the opening lows.

When a large gap in the indices attempts to fill out of the open, it tends to do so rather swiftly, often completing the closure of the gap with the 10:45 ET or 11:00 ET correction periods. The 5-minute 20-period simple moving average served as an initial resistance level coming off the opening rally, hitting at approximately the same time as the morning gap closed. The market stalled there for 15 minutes before breaking through the highs, continuing to the 15-minute 20-period simple moving average resistance level, as well as price resistance from Thursday's mid-day congestion.

The 15-minute resistance hit at the same time as the 10:45 ET correction period. Even though the volume was decent on the upside initially, the second wave of buying on the 5-minute time frame into that larger resistance was on lighter volume. Not only that, but the momentum also declined on the continuation move into that 15-minute 20 sma. These traits, combined with the resistance levels hitting at the same time as the correction period made it very easy for the market to roll over.

The downside was strong off intraday highs. I immediately began to watch for continuation moves for lower late morning lows. At the very least, the morning's action, combined with the weak daily charts, would push the indices into a wider range on the 30-minute time frame and test the zone of the opening lows. The continuation patterns on this late morning drop did not take long to form, correcting only about 15-minute between each drop before finally testing the opening price level in the indices between 12-12:30 ET.

If the market was going to hold the range, the mid-day lows should have held well, leading to a bounce into the early afternoon. Although the momentum attempted to increase on the upside into the 5-minute 20 sma, the volume remained light and the 5-minute 20 sma held as resistance. Instead of hugging that resistance level to break higher, the indices slid down it, finally letting go just after 13:00 ET to move last mid-day lows and back into the morning lows. The momentum continued to shift back in favor of the bears with a short-lived move back into the 5-minute 20 sma before the indices broke more strongly to new lows on the day heading into 14:00 ET.

Although not as choppy as Thursday's selling, the overall downside on Friday was not at all extreme. There was a lot of overlap in prices from one bar to the next and it didn't form the preferred bear flags and breakdown patterns to easily satisfy the bears. CME data problems didn't help matters and the chop left the door open to allow a late day rally to easily take over.

The market began to hint at a late day reversal a few minutes past 14:30 ET. The third wave of afternoon selling on the 5-minute patterns broke higher at that point and about 15-minute later the larger 15-minute downtrend channel also broke. This larger break attracted the bulls who had been waiting throughout the day for such an opportunity. The slower, choppy downside left the intraday bears tripping over each other to get out and the market jumped higher, all the way back to the highs of the mid-day rally attempt. It held as the market congested into the closing bell.

Despite the late-day recovery, the Dow Jones Ind. Ave. ($DJI) still closed lower by 146.70 points, or 1.2%, at 11,893. It lost 2.8% over the course of the week. The S&P 500 ($SPX) fell 10.97 points, or 0.8%, and closed at 1,293.37 for a loss of 2.8% on the week. The Nasdaq Composite shed 8.01 points, or 0.4%. It closed at 2,212.49, down 2.6% on the week.

Last week's action failed to really excite the bears, who would have preferred a stronger breakdown pattern instead of the slippery drop which took place. At the same time, the economic data and other financial news continues to weigh heavily on the bulls and the technicals continue to point to further downside to come. The makes it very difficult for short-term players since we are not likely to see an easy move lower without another range or daily correction lasting a week or two, but upside moves are not likely to last long. I didn't have much luck when scanning for new longer-term positions over the weekend and all the potential swingtrades I located are on the short side, but need more ideal intraday activity. As a result, I'll be focusing primarily on intraday price moves into the early part of the week with few overnight holds.

Dow Jones Industrial Average ($DJI)


S&P 500 ($SPX)


Nasdaq Composite ($COMPX)


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.