German trade data came in worse-than-expected and Italian industrial production fell more than projected. On our shores, economic readings were also disappointing with the international trade gap narrowing less than expected while wholesale inventories rose more than expected in April.Despite a shaky start, stocks found their footing as investors prepared for news out of Europe and China. Over the weekend, Spain is expected to petition the European Union for a bank recapitalization bailout and China is scheduled to release a bevy of economic data.  

Financial stocks showed initial weakness after the Fed revealed plans on Thursday to increase capitalization requirements. By the end of Friday's session, however, Bank of America Corp (BAC +1.89%) and Citigroup Inc (C +3.20%) had tallied solid gains.  McDonald’s Corp (MCD -0.71%) was lower after posting a weaker-than-expected result in May same-store sales on slowing international sales. Also in the space, Yum Brands Inc (YUM -3.26%) fell.

There was strength in Telecom stocks as shares of AT&T (T +1.14%) and Verizon Communications Inc (VZ +1.92%) gained. Energy shares were lower as crude oil prices dipped nearly -3% intra-day, yet lower energy costs helped airlines rally, including United Continental Holdings Inc (UAL +2.49%) and U.S. Airways Group Inc (LLC +7.71%).

In bondland, Treasuries were mixed along the curve. The 10-year note was up 2 ticks to yield 1.63% and the 30-year bond gave up 1/8 of a point to yield 2.75%.

Technically, the big gains by the major averages on Wednesday's session were too soon (Day 3) in the nascent rally attempt to be considered a valid follow-through day (FTD).  The expansion in leadership (new highs) and the major indices' rebounds above their respective 200-day moving average (DMA) lines with gains on higher volume were encouraging signs. 

The major averages (M criteria) are technically still considered to be in a rally attempt within an ongoing correction, and stocks may still be vulnerable to  greater downside.  Historical studies suggest that the most constructive market rallies produced a solid follow-through day (FTD) between Days 4-7 of a new rally effort. Gains of +1.4% or greater by at least one of the major indexes should be backed by higher volume (preferably above average volume) coupled with an expansion in the number of stocks hitting new highs. Only fresh technical proof may give fact-based investors the clearance to begin with new buying efforts strictly in sound buy candidates. Meanwhile, investors should keep up a watchlist of worthy buy candidates while remaining protective of capital.

PICTURED: The Nasdaq Composite Index's rally attempt remains valid unless the "Day 1" lows are violated. Friday's session marked Day 5. Notice that the tech-heavy index also has a downward sloping 50-day moving average (DMA) line. When that short-term average has a downward slope it is fair to say the market has been struggling for a while, and disciplined investors following the fact-based investment system have likely moved much of their cash to the sidelines. This tactical approach reduces stress and protects precious capital during bearish market environments. This also helps to preserve investors' confidence so they are ready to act when a new confirmed rally eventually presents itself while less experienced investors might still be nursing their wounds.