Good day! After breaking out Thursday from a week-long trading range at highs, the buyers continued to push ahead into the weekend. The indices, however, experienced a stronger divergence than in previous days. The Dow Jones Industrial Average, which is bumping its head against the 12,000 resistance level, saw a lot more weakness throughout the day, while the Nasdaq Composite and S&P 500 excelled. This divergence appeared right into the open with a gap down in the Dow and a relatively flat open in the Nasdaq.

After rallying into the close the day before, the market was a bit extended. The Nasdaq experienced the greatest strength early on, but eventually joined the other two indices and began to correct. It managed to move slightly higher into the 10: 45 ET reversal period. At that point, however, it joined the S&P 500 and Dow Jones Industrial Average in a larger correction into noon. This was the second correction on the 15 minute charts since the reversal off lows on Wednesday afternoon.

Volume dropped off as the market pulled in. The downside pace slowed within the range in the Nasdaq and S&Ps. Both of these attributes are bullish. The 15 minute 20 simple moving average held nicely in these two indices as the morning came to an end. At the same time, the weaker Dow found support of its own from the lows of the prior afternoon. The pace within its correction also slowed on the decline, sliding lower as it nearly hugged the 5 minute 20 sma resistance. When this happens on a decline it is also an indication that the resistance level is more likely to break strongly if it makes that initial attempt.

The S&P 500 and Nasdaq Composite both began their third waves of upside on the 15 minute charts as the afternoon kicked off. The upside was not as strong as Thursday's but the action was steady. The target level in the ES (S&P 500 EMini) was 1375, expected to come in two waves to mimic the prior afternoon. (12:51 ET Toni: "1375 is ES resistance on this 15 min breakout... had two waves of upside yesterday afternoon... so a repeat on the breakout would be pretty normal.")

The ES managed to make it to within a tick of that level as the 14:00 ET reversal period hit, performing perfectly from a technical standpoint and hitting that target with the two wave continuation. The slightly lower pace or momentum, however, made the next action much steeper. Usually the market will try to establish a greater correction following three waves of upside and the pace allowed this correction to be stronger than the rally. It took less than half the time for the Nasdaq and S&P to make it back into the morning congestion as it did to rally into its highs in the first place. The Dow, which had been weaker early on, found support at the prior 5 minute lows. These support levels hit with the 15:00 ET reversal period and the market pulled back up off that support into the last hour of the day.

The Nasdaq Composite rose 11.11 points, or 0.5%, on Friday, giving it the largest percentage gain. The S&P 500 came in second with a gain of 2.79 points (0.2%). The Dow Jones Industrial Average also closed higher despite its best efforts early on. It rose 12.81 points (0.1%). A lot of the weakness in the Dow came from losses in Home Depot (HD), which fell 2.6% after being downgraded, and a 0.7% decline in General Electric Co. (GE). Even though GE's earnings on Friday were in line with estimates, Citigroup expressed displeasure with their operating costs. Microsoft Corp. (MSFT), on the other hand, helped out the Nasdaq, gaining 0.5% on a confirmation for the release of its upcoming Windows Vista operating system.

This week I am still looking for more upside within the week, particularly early on. While the indices formed three waves of buying on the 15 minute charts, they are still in the middle of a third wave on the 120-minute charts and have some more room to move before hitting resistance based on comparable moves as the last two waves of upside which began on September 22.

Economic Reports and Events
Oct. 16: NY Empire State Index for Oct. (8:30 am)
Oct. 17: Core PPI and PPI for Sep. (8:30 am), Net Foreign Purchases for Aug. (9:00 am), Capacity Utilization and Industrial Production for Sep. (9:15 ET)
Oct. 18: Building Permits, Core CPI, CPI, and Housing Starts for Sept. (8:30 am), Crude Inventories 10/13 (10:30 am)
Oct. 19: Initial Claims 10/14 (8:30 am), Leading Indicators for Sept. (10:00 am), Philadelphia Fed for Oct. (12:00 pm)
Oct. 20: -

Earnings Announcements of Interest
Only stocks with an average daily volume of 500K+ are listed. List may not be complete so be sure to always check your stock's earnings date before holding a position overnight.
Oct. 16: CBH, CCK, ETN, MI, MAT, PPDI, PHG, SONC, TMA, VCP, GWW, WB
Oct. 17: ADTN, ASD, ASO, BOT, CHTR, CSX, EMC, FRX, GAP, HWAY, ILMN, INTC, IBM, JEF, JNJ, KEY, LLTC, MER, MOT, NCC, NVLS, ODP, PKG, SOV, STT, SYK, STI, UTX, WFC, YHOO
Oct. 18: ABT, ADS, AMLN, AAPL, ASML, BSX, COF, CDWC, CIT, CTXS, CNB, CBSS, CBST, ET, EBAY, GD, GPC, ITW, RX, ISIL, JPM, JNPR, KEA, LHO, MEL, MOGN, MGI, NTRS, NCX, JNC, NVEC, OXY, PH, PLCM, RDN, RJF, RYL, SEIC, SSTI, SON, SPSN, STJ, SNV, TCB, TER, ALL, WM
Oct. 19: AVCT, BAC, BAX, BBT, BHE, BGG, BRCM, CNI, CERN, CHKP, C, CMA, CAL, CREE, C, DHR, DJ, ELNK, LLY, ENDP, EFX, EXAR, FCS, FITB, FSL, GOOG, HON, HBAN, HYSL, INFA, LRW, LSTR, LEG, MCD, MOLX, NE, NOK, NVS, NUE, OXPS, BTU, PMCS, POOL, DGX, RMBS, RBAK, RS, RHI, ROH, SNDK, SAP, SHW, SIRF, SLM, LUV, SPWR, SY, SYNA, ERIC, TPX, TXT, BK, KO, HSY, MHP, NDAQ, NYT, TRB, UNP, UB, UNH, VRSN, WCC, WSTL, WYE, XLNX, ZION
Oct. 20: MMM, ACI, CAT, ECL, MRK, NETC, SAY, SGP, SLB, VMSI
Note: All economic numbers and earnings reports are in lines with those compiled by Yahoo Finance. Occasionally changes will occur that are made after the posting of this column.

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.