We knew it wasn't going to an easy correction off the daily support! This certainly proved the case with Friday's session! The day essentially confirmed in my book that this time around the market is not going to be able to make a recovery like it did with February's decline. My weekend scans also make me wary of buying anything other than very short term positions, meaning setups that take place on a 60 minute time frame or smaller.

Heading into the day on Friday, I was a bit more bullish on the smaller time frames given how the market closed the previous day. Right away, however, an initial attempt to move higher based upon Thursday's close failed. The main catalyst was a weak July jobs report in the premarket. The market chopped around for about 15 minutes out of the open and then gave way to selling out of the 9:45 ET reversal period. The momentum of this move led to higher odds for a trading range to hold throughout the morning and the indices became a bit more difficult to trade due to the overlap and chop from one bar to the next on the 5 and 15 minute time frames.



The market fell back into the lower end of the 15 minute trading range by shortly after 10:00 ET. Despite a 2B attempt at the 10:45 ET reversal period, the market failed to regain any significant upside momentum. When the 5 minute 20 sma hit, the indices fell into congestion along it, breaking higher on a Phoenix, essentially triggered a reverse head and shoulders pattern on the 5 minute time frame, but they barely pushed higher even with the more bullish type of pattern. At 12:30 ET the mid-day uptrend channel broke and two waves of selling followed into 13:00 ET. the market attempted again to regain some upside, but when this second uptrend channel break on the 5 minute time frame it triggered a much more substantial short pattern on the 15 minute time frame. All of my focus at this point flipped to the downside.

It was not the easiest selloff to work with once under way. There were no clear-cut bear flags or even bases at lows for decent continuation patterns. Instead, the market just chopped lower with more overlap from bar to bar as it chopped up traders left and right before finally plummeting into the final minutes of trading. The closing drop in the S&P 500 even took this index to new lows on the month, although the Dow and Nasdaq still managed to hold Wednesday's lows.



By the closing bell on Friday the Dow Jones Industrial Average ($DJI) was down 281.42 points. The S&P 500 lost 39.14 points. The Nasdaq Composite fell 64.73 points. In each of these it meant a decline of more than 2% during that session alone and was a second straight week of steep losses. Among the hardest hit on Friday were those wrapped up in the housing debacle. Brokers such as Bear Stearns' (BSC) (-6.3%), Goldman Sachs (GS) (-4.2%), and Lehman Brothers (LEH) (-7.7%) all had a rough day. Even Home Depot (HD) (-4.3%) experienced a sharp decline.



The Fed makes another interest rate announcement on Tuesday and I suspect that Monday and Tuesday morning are going to be slower and lacking in higher number and high quality momentum moves in individual stocks. Many traders and investors will be sitting on the sidelines after the last two weeks of carnage and will await the Fed's news before looking to establish any new positions of greater size. The Fed is expected to leave rates unchanged, but everyone will be watching to see what, if any, clues their may be for helping ease the current credit crisis. So far the Fed has taken quite a back seat approach and shown no signs that it plans to do anything at all to really address these concerns.

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.