Not surprisingly, trading was light as the week wound down on Friday. Despite the lighter volume, the market still pushed higher. The Dow Jones Industrial Average ($DJI) gained 119.01 points on Friday, while the S&P 500 ($SPX) climbed 16.35 points, and the Nasdaq Composite added 31.06 points. Advancers led decliners 7 to 1 on the New York Stock Exchange, but on the Nasdaq advancers beat out decliners by more than 2 to 1.

Two key news events existed on Friday which were watched closely by many market participants, although the end result was rather indecisive intraday given that the market had a difficult time gaining and maintaining any strong momentum one way or the other intraday. Fed chairman Bernanke spoke at the central bank's yearly conference in Wyoming, but he let very little slip. The market is expecting at least one rate cut by the end of September and was hoping to get a better read as to when and if their expectations would be met.

In other news, President Bush announced his goals to assist subprime mortgage borrowers in keeping their homes, a plan that would include refinancing into government-insured mortgages. For now this is merely word-play and it is yet to be seen as to whether any of his proposal will make it. The market toyed with this while Bernanke continued to preach to the choir about the pressure the housing market could have upon the overall economy.



The market had initially turned bullish again on Wednesday, gapping up into the open and then continuing higher throughout the day. This buying then continued into Thursday morning. At this point, however, the momentum slowed. The indices had a more difficult time making new intraday highs as Thursday morning progressed. Before noon the indices had rounded off at highs before giving way to some stronger selling into the afternoon. The market recouped very little of its intraday losses before Thursday's closing bell, but the market nevertheless gapped higher on Friday.

Although the indices were trading higher in the early hours of the morning, the morning gap had a bit of help from premarket data. At 8:30 am ET the Commerce Department reported milder-than-expected inflation in July, while there was slightly better-than-expected growth in consumer incomes and spending.



Following the open, the indices fell into a weak trading range. This range broke lower with the 10:00 ET economic data. The Commerce Dept. announced that factory goods made in the U.S. rose 3.7% in July, which was better-than-expected. Most of this increase was the cost of transportation, however, with an increase of 2.4% when transportation data was excluded. The flush primarily affected the Dow and S&Ps. Both quickly moved into the day's lows and into support at the 5-minute 20 simple moving average intraday. They bounced off this support and then slowly pulled back a second time into the 11:15 ET reversal period.

The second pullback intraday on the 5-minute time frame was not only more gradual than the first, but the volume was also quite a bit less than on the initial drop. This created a decent buy setup around 11:30 ET. While the market stalled at the morning's highs, a sloppy congestion along that level was soon breaking to new highs on the day. It didn't get too far though. Within half an hour the market was at strong resistance on the daily time frame. The Nasdaq was testing previous daily highs while the Dow and S&Ps were running smack into their 50-day simple moving averages. When these daily moving averages hit for the first time after reversing they have a very difficult time breaking through the level the same day.

All the congestion and slower highs began to round things off on the daily time frame. There were some decent scalp setups into the afternoon, but overall the market was pretty sloppy the rest of the day with volume very light until the last moment when the market suddenly fell apart into the last 15 minutes of the trading day as folks rushed to unload positions ahead of the three-day weekend.



Heading into the new week I am looking a bit more on the bearish side into the open on Tuesday. The slowdown in the buying makes it easier for the sellers to take hold. On the daily time frame, however, there is the potential now for the market to attempt to pull back into June's highs. I would like to see a day or two of nice selling before I look to position myself too strongly on the long side.

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.