I hope you are faring well! It was a pretty wicked week of trading for the market, plummeting in a manner that we have not seen for a number of years. Given that this decline came on the heels of very hesitant buying into huge price resistance from the 14,000 level in the Dow Jones Industrial Average ($DJI) and the 2000 highs in the S&P 500 ($COMPX), the odds are very high that we are now going to experience a much larger correction on this monthly time frame while the market corrects from the bull market of the past five years. This has led me to initiate trailing stops on many of my longer term position trades. A number of them took me out of at least partials in this past week.

On Friday alone, the Dow lost another 208.10 points (-1.5%) and closed at 13,265.47. By the end of the week the cumulative selloff amounted to a 4.2% decline. The S&P 500 lost 5% last week. On Friday it fell 23.71 points (-1.6%). The Nasdaq Composite fell in between, sliding 4.6% with 37.10 points lost on Friday (-1.4%). Some of the hardest hit stocks on Friday included Six Flag (SIX), which had broken down in June from a multi-year base at lows and has been experiencing accelerated selling in recent weeks, GoodYear Tire & Rubber Co. (GT), which had rounded off at multi-year highs in the last several months and rolled over sharply in the second half of last week, and QLogic Corp. (QLGC), which gapped sharply out of a 6+ year trading range on lower-than-expected earnings.

Some of the other most extreme losers were Merck & Co. (MRK) (-3.6%), Exxon Mobil Corp. (XOM) (-3%), American Express (AXP) (-2.8%), DR Horton (DHI) (-3.2%), and Blackstone Groups LP (BX) (-5.4). Those hard-hit by earnings include ITT Corp. (ITT) (-4.6%), Ingersoll-Rand Co. (IR) (-5%), and Chevron Corp. (CVX) (-2.6%).

Despite the underlying weakness, a few top names still made gains. Most of these did so after selling off into strong daily support on Thursday and bounced off those support levels on Friday. CME Group Inc. (CME), Quicksilver Resources Inc. (KWK), and Ceridian Corp. (CEN) were several examples. Also on the move were Stericycle Inc. (SRCL), and Dynamic Materials Corp. (BOOM). SRCL was running on earnings news after announcing on Thursday after the close. It gained 13.82% on Friday. BOOM also took off following earnings and gained 12.85%. Interestingly, most the gains in both of these stocks took place during the trading day as market participants were drawn to these rare beacons of strength on the day.



From a technical standpoint, the market was primarily stuck in a trading range on Friday. The indices had regained quite a chunk of the losses from the large intraday decline on Thursday in the final hour of trading. Even though they pulled back a bit for the first 15 minutes of the day on Friday, they continued back into Thursday's afternoon highs around 10:15 ET. They broke those highs by a hair, creating a 2T reversal pattern at this major morning correction period. It corresponded to the 5 minute 200 simple moving average in the Nasdaq.

Since the upside momentum into 10:15 ET was average to above average, it meant that the earlier intraday lows would be support. The momentum increased into this support when the 10:45 ET reversal period hit, but it lacked the volume from the previous day. This suggested that overall a larger trading range would hold, but the momentum and 2T on the 5 minute charts held the buyers in off this initial support and a second wave of selling followed out of the 11:15 ET reversal period. This second decline continued into noon, at which point the bears became more hesitant. The indices finally flushed back into the previous 15 minute lows from Thursday at 12:30 ET.



The comparable momentum on the morning's 15 minute decline as that from Thursday afternoon's rally established the previous lows as significant intraday support, much as the comparable pace on the 5 minute decline created support at 10:15 ET. Essentially, the same pattern that formed on the 5 minute charts ended up repeating on the 15 minute time frame. Just as the market congested with slight upside on declining volume on the 5 minute charts from about 10:45-11:15 ET, the indices moved slowly higher from 12:30 ET into nearly 15:00 ET on a slowdown in volume.

This afternoon upside was choppy with a great deal of overlap on the 15 minute time frame as the market retraced a bit over half the morning's decline to the 62% fibonacci level in both the Nasdaq and Dow. Even though I don't use Fibonacci levels intraday in my own charting, I've found them to be highly accurate in the indices as a confirmation tool for support and resistance levels. Often major moves in the market will begin and end at these zones.



In the final hour of trading on Friday the market again experienced a sharp selloff. Notice that on the 15 minute time frame this came after two waves of upside, which is typical for correction moves in a larger trend as opposed to reversal moves. I did manage to catch the short initially, but unfortunately I took off a bit early on Friday and missed the largest chunk of the move which took place in the final 30 minutes of trading. This only occurred once the trend channel from the move out of 12:30 ET broke lower following congestion at the 5 minute 20 sma support into 14:30 ET.

I am expecting volatility in the market to remain high in this coming week or two of trading, but with a lot more back and forth action on the 15-60 minute charts since the indices are going to need to show some reactionary moves off daily exhaustion. This type of market does not tend to recover easily, so even if the market does pull back up a bit, the action would likely be similar to the 5 and 15 minute charts from the afternoon on Friday. Take a look at the drop in late February for example. Since this is the second such move of the year, it will tend to have an even more difficult time than before.

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.