Good day! Market action was slow on Friday, although volume remained decent throughout the morning. The session began with a modest upside gap that pushed the indices once again to new highs on the year and all-time highs in the Dow Jones Industrial Average. This was a bit premature, however, compared to the previous rally and the relatively minor base from Thursday. As I mentioned heading into the day, a slightly longer base would have been ideal to allow for a strong upside follow through. Instead, this opens the door for those rounded highs on the 60 minute time frame that can lead to a more rapid decline off the highs. So far though, I don't see any strong reversal pattern forming, only the increased risk that one can now develop.

The market held up fairly well initially on Friday morning, falling into a small trading range about 10 minutes into the day after the premarket data, which contributed to the gap. The Labor Department reported that 157,000 jobs were created last month, which exceeded expectations. In other positive news, the Commerce Dept. reported that core consumer price inflation increased only 0.1% in April. This broke quickly higher when the 10:00 ET economic data came out from the Michigan Sentiment Index, April's pending home sales data, and May's ISM Manufacturing Business Index. The Institute of Supply Management reported that its May manufacturing index rose to 55% after a previous reading of 54.7% in April. This was positive since most were expecting a decline. It was offset, however, by the University of Michigan's May consumer sentiment survey which was revised lower to 88.3 from 88.7. Pending home sales were also dismal. The index which tracks these declined 3.2%. After an initial spike, the excitement died down and a steady slide lower began shortly after the 10:00 ET data came out.

The market lacked strong momentum intraday, but there were still some decent patterns if you stuck to a 15 minute time frame and ignored the chop on the 1-5 minute charts, which can be hard at times. The market crept lower into the 11:00 ET reversal period, at which point the market correction off the support from the previous day's trading. The indices corrected off those lows on declining volume into noon. After two small waves of upside, the correction ran into the 12:00 ET reversal period and a short trigger quickly hit, breaking the market lower once again into the early afternoon. The volume was not quite as strong on this second decline of the day, although the momentum remained comparable and hence the indices were able to establish a measured or equal move and held it almost perfectly at about 12:45 ET.







After the measured move support hit, the momentum turned back around by pulling quickly into the upper end of the downtrend move at 13:00 ET and then breaking higher at about 13:15 ET out of a tiny 1 minute Phoenix pattern that formed along the upper downtrend line from the 12:00 ET drop. The market made it back into the 12:00 ET price level at the 14:00 ET reversal period and held this resistance zone into the end of the day. It was a sloppy finish in the Nasdaq, which closed near the session's lows, even though the Dow managed a late recovery in the last 45 minutes of the day. The Dow finished with a gain of 40.47 points, while the S&P 500 rose 5.72 points, and the Nasdaq Composite gained 9.40 points. Momentum overall still favors the bulls, but as I mentioned earlier, it's going to be easier for the bears who think we are too far extended to try to turn things around intraday by only allowing for minor higher highs to trap bulls and create doubt. Nevertheless, I will still be more cautious on the short side to begin with.

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.