The market has experienced a lot of disappointment this earnings season. Overall market action has been choppy as last quarter's reports wrap up, turning the focus back to larger economic concerns such as rising fuel and food costs.

On Friday the Dow Jones Industrial Average ($DJI) lost another 120.9 points, or 0.9%, to close at 12,745.88. This brought the losses for the week to over 300 points, or -2.4%. The 60-minute Avalanche short pattern I had been looking at earlier in the week had formed Tuesday, triggered on Wednesday and followed through quite well during the remainder of the week.

Leading the downside in the Dow on Friday was American International Group (AIG). It shed 8.8% following a larger-than-expected loss which led to a cut in the the insurance company's credit rating by Standard & Poor's.

Holding up somewhat better was the S&P 500 ($SPX). It still lost 9.4 points, or 0.7%, on Friday to close at 1,388.28 for a weekly loss of 1.8%. The Nasdaq Composite ($COMPX) lost 5.72 points, or 0.2%, and closed at 2,445.52, down 1.3% on the week.

The index futures fell sharply in afterhours trade on Thursday and premarket Friday morning. They hit lows between 5:30 and 6:00 am ET and rounded off into the opening bell. The Commerce Department reported a large drop in exports as well as imports ahead of the bell, bringing the trade deficit down to $58.2 billion. This had relatively little impact on premarket trade, however, since prices were already beginning to round off coming off the lows.

Dow Jones Industrial Average ($DJI)


Although up off lows, the indices all still opened with rather substantial downside gaps. As long as downside gaps of this magnitude head higher within the first 15 minutes of the day, they stand a strong chance of at least one of the three major indices closing that gap in the morning. The Nasdaq, which had the strongest relative performance throughout the week again took the lead on Friday and began to pull higher almost immediately.

The S&Ps and Dow were more reluctant to fill the gap, favoring the larger bearish daily sentiment. Although the Nasdaq broke higher at 10:00 ET into the 5 minute 20 simple moving average, the S&Ps and Dow fell into a longer range at intraday highs shortly after the opening bell. All three of the indices, however, moved to new intraday highs out of 10:30 ET. The Nasdaq had been hugging the 5 minute 20 sma on light volume, so it provided perhaps the clearest setup leading to the mid-morning rally.

S&P 500 ($SPX)


The Nasdaq soared into Thursday's close, completing the gap closure as the 10:45 ET correction period hit. Although the S&Ps and Dow fell quite short of closing their own morning gaps, both hit resistance at the same time as the Nasdaq. The S&P ran into its 15 minute 20 sma, while the weaker Dow bumped up against Thursday's lows, which had now become resistance. All of these lined up and the market reacted quickly, pulling back strongly into 11:00 ET. This change in momentum was enough to turn the market bearish for the remainder of the morning and into the early afternoon.

Nasdaq Composite ($COMPX)


The market slid lower mid-day with a lot of price overlap on both the 5 and 15 minute time frames. This is typically a rather difficult type of market to trade in. Volume had dropped off and while a choppy decline can create a rapid pop higher with little notice, the overall momentum was not slow enough on the downside to easily sustain such an attempt. The result on Friday was that a turn higher into 13:00 ET did not make it past that correction period and the indices fell to one more low intraday into the 13:30 ET reversal period to flush out overly eager buyers.

The remainder of the session was spent in an uptrend, but it also remainded more choppy than average. A move higher into 14:00 ET was followed by an extended congestion zone into 15:15 ET before the market made one last intraday high into 15:30 ET. The indices then pulled back into the final 30 minutes of trade and closed near the middle of the day's range.

I am not very optimistic in the near future for the bulls. Although there are some decent support levels that will hit on the way down, I don't think many of them will hold for more than a few days if we continue to see selling early this week, which is likely. I suspect that we are now going to be looking at another move lower on the weekly time frame into the summer since a lot of resistance had hit on that time frame over the last two weeks. The most notable was the November and December lows. This zone has hit and is also a 50% retracement zone for the indices, which have regained slightly more than 50% of the losses that had occurred on the decent off last year's highs. This was what I originally looked at for resistance almost two weeks ago. Even though it has pushed somewhat higher than exactly 50%, its still within the zone of that resistance level.

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.