'I'm not surprised at it. I know I can go low and play with the best of them,' said Nallen. 'I'm not looking to finish second. I don't see the point of teeing it up if you're not looking to win.'
Ricky Barnes, the 2002 U.S. Amateur champion, carded a 68 to move into a tie for third at 12-under-par 132 along with Kevin Stadler, Brett Wetterich, Jeff Freeman and Scott Gutschewski.
Nallen, who made his Nationwide Tour debut with a remarkable 60 on Thursday, kept attacking Whirlwind Golf Club's Cattail Course in the second round. He birdied each of his first two holes but stumbled to a bogey at the par-4 fourth, his first dropped shot of the tournament.
The 22-year-old responded with a birdie at the very next hole but he gave that shot back with a bogey at the sixth. Nallen quickly shook off that mistake and birdied his next three holes to make the turn at 16 under.
Nallen added a birdie at the 12th but faltered again with a bogey at the following hole. The University of Arizona product parred his next three holes until an eagle at the par-5 17th guaranteed him a comfortable advantage heading into the weekend.
'It's a different stage and a different level,' he said. 'I know I can play with these guys. I'm just trying to worry about what I have to do out there.'
Petersen started at the 10th and scorched the back nine with five birdies. He continued his fine play on the front side with back-to-back birdies from the first before finding trouble with a bogey at the fourth.
The 34-year-old, who won the 2000 Inland Empire Open, countered with a birdie at the par-5 seventh for a round of 65.
'I kind of figured it would be a shoot-out week, which doesn't bode well for me,' said Petersen. 'So far, so good. I don't do as well anytime it's a putting contest where you have to shoot 20 to 25 under.'
Bobby Gage and Kenneth Staton posted matching rounds of 66 to share eighth place at 11-under-par 133.
Brent Schwarzrock, who shot a 62 on Thursday, managed only a 72 in round two. Schwarzrock was joined by Brad Ott, Jeff Gove, Chris Anderson, Nick Watney, Steve Holmes, Matthew Jones, Barry Cheesman and Ben Bates at 10-under-par 134.
The 36-hole cut fell at 5-under-par 139 with 69 players qualifying for the weekend.