The market action on Friday was quite a contrast to a mere week ago. A disappointing earnings report early this earnings season from General Electric (GE) had sparked concerns that the current economic slowdown would negatively impact earnings across the board this past quarter. Over the course of the week, however, a number of top-name companies reported better than expected earnings and the indices made a strong recovery.

Strength on Wednesday was followed by a resting period on Thursday, but the upward momentum returned into Friday on the heels of earnings from Google Inc. (GOOG). GOOG had reported afterhours on Thursday and was up 10% immediately following the news. By the close on Friday it had gained 89.87 points, making a stellar 20% move. The earning results from equipment-maker Caterpillar Inc. (CAT) also helped boost the Dow Jones Ind. Ave. ($DJI). It led the Dow and closed higher by 8.51%, nearly retaking last year's highs. Another company which moved well on Friday was Honeywell Inc. (HON). It gained 6.3% on Friday.

In this coming week, 157 of the S&P 500 companies are due to report. This will be the busiest week for first-quarter earnings this season and expectations are for a drop of 14.6% as compared to the same quarter last year. Some of the major names to watch for early this week are Merck (MRK), Texas Instruments (TXN), Halliburton (HAL), and Eli Lilly (LLY) on Monday. On Tuesday Yahoo (YHOO), Dupont (DD), Fifth Third (FITB), SunTrust (STI) JetBlue Airways (JBLU), and Kimberly-Clark (KMB) are just a few that will be announcing. Apple (AAPL) and Amazon.com (AMZN) then report on Wednesday following the close, while Motorola (MOT), Amgen Inc. (AMGN), Microsoft (MSFT), and ConocoPhillips (COP) announce on Thursday.

The session began on Friday with an extreme upside gap. The futures had broken higher once again in the premarket around 6:00 am ET after having already posted substantial upside following the close the afternoon before. This activity took the market into the highs from the 7th, which we had been monitoring as resistance. In fact, it brought them just above that level, so instead of being resistance as expected, it became intraday support.

Typically a gap such as this will begin to close within the first 15 minute of the day, and if it does not and ends up holding during that time, then the odds are higher that a trend day in the direction of the gap will occur. On Friday the market defied the odds. It began to close within the first 15 minutes, but the pace of the selling was moderate and there was a great deal of overlap from one bar to the next on a 5 minute time frame.

The market popped when the 10:15 ET correction period hit, breaking the trend from the pullback with more strength than the overall downtrend. A bit of congestion followed as the momentum continued to roll over. By 10:45 ET the market was already coming back into the morning highs. The pace of the buying accelerated and this supported an uptrend bias into the early afternoon.

Since the market had plenty of room to move before hitting an equal move compared to the rally which took place into mid-day on Wednesday, it was easy for the trend to continue throughout the morning, although the buying was rather choppy overall. At 12:30 ET the indices were hitting that equal move level, which, given the 60 minute time frame, was very strong resistance. They began to turn over off highs, but the 13:00 ET correction period held as the indices hit their 5 minute 20 period simple moving averages for support and slightly higher highs were hit into 13:30 ET before the market finally reversed course into the second half of the afternoon.

Although the selling was still on the choppy side, the 5 minute 20 sma served as resistance throughout the move lower and the market experienced several strong, albeit short-lived, bouts of selling. The morning pivots on a 5 minute time frame served as support, stalling the move from time to time throughout the afternoon downtrend. The indices did pop slightly into the close with traders covering positions ahead of the weekend, but turned lower again at the bell.

The Dow Jones Industrial Average ($DJI) closer higher by 1.8% on Friday with a gain of 228.87 points, ending the session at 12,849. On the week as a whole, the Dow climbed 4.3%. The S&P 500 ($SPX) rose 1.8% as well on Friday, amounting a gain of 24 points on the day. It closed at 1,390 and also advanced 4.3% on the week. The Nasdaq Composite ($COMPX) posted the strongest performance on Friday, adding 2.6%, or 61 points, to close at 2,402. This resulted in a 4.9% gain for the week. Gainers outpaced decliners by 4 to 1 on the New York Stock Exchange and 3 to 1 on the Nasdaq on Friday, although overall market volume was typical to that of recent sessions with 1.5 billion shares exchanged on the NYSE and 989 million on the Nasdaq.

The market still offers the potential that another reversal off highs on a daily and weekly time frame may be forthcoming. Although speculation abounds that the economic slowdown may be short-lived and that things are not as bad as feared, it would not take a lot for the market to again drop sharply and continue lower in the summer or early fall. I would expect the Nasdaq to suffer the least compared to the S&P 500 and Dow Jones Ind. Average in terms of the extent of retracement back into the lows of the year thus far. The S&Ps and Dow will be more likely to hit new yearly lows should this occur, whereas the Nasdaq would more likely find support in the congestion from March initially.

Since trading over this next week will be greatly impacted by earnings, I'll be taking things a day at a time based upon how the market begins each session instead of relying as heavily on my evening analysis. That said, however, the market has had two waves of buying on a 60 minute time frame since the 15th and has room for a third, but I do not expect similar momentum and the market can easily begin to shift pace at highs once again to pullback into the latter half of the week. The 20 day sma will once again be support, but the next time it hits it will be more likely to congest along it and can more easily break through it if the market turns over following slightly higher highs on the 60 minute charts, as opposed to if it holds Friday's highs and then chops lower from that point.







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.