Oil hit record highs on Friday with crude futures trading as high as $139.01 in electronic trading on Globex. July crude rose $10.75, or 8.4%, to close at $138.54 a barrel on the New York Mercantile Exchange. Highs were hit at $138.80. They had been trading around $122 on Thursday. This really shook up a market that was already reeling in premarket trade, thanks to a huge hit following the early jobs data. The Labor Department reported that unemployment in May rose to 5.5%. This was a jump of 0.5%, which is the largest seasonally adjusted increase in unemployment in 33 years. The unemployment had been expected to rise 0.1%.

The premarket data sent the index futures tumbling into the open. The bias on the larger time frames, however, as I pointed out Thursday evening, were still very bearish. Heading into the day I had been expecting a downtrend throughout the session. Given the extent of the gap, however, I had been looking for the selling to slow more in the afternoon than it did thanks to mid-day action later on.

The session began on Friday with opening prices in the zone of Thursday afternoon lows. This created some initial support right away. Now, as I've explained many times over the years, when the market has extreme opening gaps, they have a greater tendency to fill. A notable exception is in a major trend reversal on the daily and weekly time frame. It is also imperative that the indices show signs of closing the gap within the first 15 minutes. So, if the indices gap lower, such as on Friday, and sell a little and base at lows, the odds are very small that the gap will fill that day and more likely we will see a trend day in the direction of the gap. This is exactly what happened on Friday.

Dow Jones Industrial Average ($DJI)


When the opening bell rang on Friday, the market was still selling off as it reacted to the premarket data. This continued for several minutes before things settled. The indices fell lows with slightly declining volume on a gradual slant higher to form a little bear flag on the all-sessions time frames that triggered a continuation pattern to lows at 10:00 ET. The market continued to step lower throughout the morning before hitting some larger time frame support around 11:30 ET.

As mid-day trading began the indices were all hitting price levels conducive to forcing them into a larger correction than seen up until that point in the day. The Dow was back at Wednesday's lows, the S&Ps had closed the prior day's gap, and the Nasdaq was hitting its 15-minute 20-period simple moving average and nearing Wednesday afternoon's lows.

S&P 500 ($SPX)


The market failed to bounce adequately off mid-day support levels and failed to round off at lows at the support. As a result, the bias in the indices remained bearish. The volume dropped as the indices congested at the support. A continuation triggered with the onset of the 13:00 ET correction period. The break was similar to earlier moves to begin with, but another congestion move into 14:00 ET gave way much more quickly and plunged the S&P 500 through the lows of the congestion from the past two weeks. Both the Dow and Nasdaq also experienced a surge in selling pressure as volume increased.

Nasdaq Composite ($COMPX)


The indices attempted to roll over into the final hour of trade, but only the Nasdaq experienced a lower low into 15:00 ET. The S&P 500 and Dow Jones Industrial Average both held 14:15 ET lows, so they created another set of bear flags or breakdowns despite the Nasdaq's attempt. All three failed to hold and continued fear from the bulls led to some additional panic into the closing bell as traders liquidated positions ahead of the weekend.

The week ended on Friday with a 394.64 point, or 3.1%, loss in the Dow Jones Ind. Ave. ($DJI) on the day and a 3.5% loss on the week. The S&P 500 ($SPX) fell 43.37 points, or 3.1%, on the day for a weekly loss of 2.9%. Financials fell 4.8%, while consumer discretionaries fell 4.3%. The Nasdaq Composite ($COMPX) dropped 75.38 points, or 3%, on Friday for a weekly loss of 1.9%.

The market has room for a bit of recovery action early on this week, but my larger bias is towards continued selling by the end of the week. NQ (Nasdaq 100 Emini) support levels are 1950 and 1900. ES (S&P 500 EMini) support is at 1338. YM (mini-sized Dow Jones Ind. Average) support levels are 12000 and 11800.

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.