After pulling back slightly from Thursday's close in afterhours trading Thursday evening, the market began to experience some restlessness in the early morning hours, gaining momentum a bit after 4:00 am ET. Then, after basing at premarket lows for several hours, the furies were released. At 8:30 am ET on Friday, the government announced that in August the U.S. suffered the worst jobs decline in nonfarm payrolls in four years. The unexpected loss of 4,000 jobs hit the market hard and the indices plummeted ahead of the open. So much for the 60-minute upside breakout and retest of July's highs in the Nasdaq that I'd had my eye on! Yikes!



Typically, larger-than-average gaps in the indices will attempt to close the morning of the gap. This is not as common when the market is in a larger monthly transition stage. Given that the market never closed its gap earlier in the week on September 5, I was a bit more hesitant to buy the downside gap this time around as well. While I did take it in the NQ, I ended up with only minor gains since the indices merely crept slightly higher after the open into 10:00 ET. The choppy upside and declining volume created a reversal pattern and selling hit. It began slowly, but after a small base from about 10:15-10:30 ET the downside increased. This was particularly true in the Nasdaq Composite where the downside momentum was the strongest.

Selling stalled at about 10:45 ET with the reversal period, but the market lacked a strong exhaustion move with a decent volume spike, even though the volume was higher than during the previous session. The market continued slightly lower after 11:00 ET, but the Nasdaq was too extended and barely slid past the previous lows by only a few ticks, whereas the Dow Jones Ind. Ave. and S&P 500, which had been more reserved on their price declines, were able to push through the earlier lows by a greater degree. In the Nasdaq the fact that the second low took place on such gradual pace and on lighter volume than into 10:45 ET helped turned that index and the market as a whole higher into lunch.



The pivot at 11:30 ET, while not coming out of a typical reversal period, was much stronger-than-average thanks to the slowdown in the selling just prior to the reversal. The market hit resistance initially at 12:00 ET when the Nasdaq came back into opening lows, and the S&Ps hit that morning congestion at the same time as this mid-day reversal period. Volume dropped off as the market pulled back off these highs, but it failed to increase much when the market attempted a new mid-day high into 12:30 ET. The indices only broke the previous high by a few ticks before pulling back a bit more strongly into 13:00 ET. A third wave of buying on the 5-minute charts mid-day followed, but once again the highs were only slightly above the previous one. This created a larger momentum reversal and a strong breakdown setup triggered at about 13:30 ET when the lower trend channel and 5-minute 20 sma support gave way.



Although the initial breakout kicked off strongly, it did not get far before congestion set in. The market chopped sideways, using the 15-minute 20 sma as resistance, before breaking lower into 15:00 ET. This took the indices back to the morning lows, but the indices had a difficult time maintaining downside momentum and the market whipped back and forth after hitting the support. The market retested lows and then pulled up a final time in the last 15 minutes of the day after hitting the 15-minute 20 sma a third time around 15:15 ET.

Despite closing up off lows, the Dow ($DJI) still lost 249.97 points on Friday, while the S&P 500 ($SPX) fell 25 points, and the Nasdaq Composite ($COMPX) dropped 48.62 points. While the market has been under heavy pressure, gold stocks have really chosen this moment to shine. Many broke out of congestion to the upside recently and really took off in this past week. GLD, which tracks the index, shot to new 52-week highs.

Most the focus in the market this week will be on the Fed. since there is very little in terms of significant economic data this week. Federal Reserve Chairman Ben Bernanke, Fed. Governor Frederic Mishkin, and San Francisco Fed. President Janet Yellen are all planning on speaking early in the week. Currently the Fed.'s lending rate stands at 5.25%, but more and more people are expecting a 50 basis point cut to be announced with the Sept. 18th Fed. meeting.

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.