DOW Friday close at 13507

The DOW finally showed some definite signs of having found a temporary top. With a classic reversal day on Thursday (new all-time high, lower low than the previous day, and closing below the low of the previous day) the DOW has given notice that the highs of this recent up-trend may be temporarily set. This was the first week closing in the red since it broke out from the previous all-time highs (5 weeks ago).

The previous weekly and daily high close of 13556 will now become strong resistance. Intra-day rallies may head up as high as 13585 but closes should be maintained below 13556.

A rally is expected on Tuesday, due to the Friday's closing near the highs of the day, but any rally above Friday's intra-day high of 13515 should be considered a re-test of the highs and a reason to liquidate long positions associated with the DOW.

Several of the strong stocks associated with the DOW showed weakness on Thursday and on Friday either closed below or at the 20 day MA. Any further weakness in the DOW will cause these stocks to break their near turn supports and generate a stronger correction.

There is little support under the market except at Thursdays low of 13423 and the 20-day MA currently at 13369. One more support below that at 13210 but after that there is little until 12900 is seen. All supports are "minor" and therefore cannot be depended on to stop a strong correction from taking place. Resistance will be strong at 13556, some at 13585, and then again at the all time high at 13624.

If this is in effect a corrective phase it is possible to see a drop in the DOW to the breakout level at 12750 (as a re-test of the validity of that breakout). In my personal opinion I do believe this is a corrective phase that is likely, over a period of a few weeks, to take the DOW down to the 13040 level at least.

A statement by Alan Greenspan, former Fed Chief, that the Chinese stock market is likely to have a "dramatic" correction soon could fuel fears of the DOW also suffering during such a phase. It bears closely monitoring the Chinese Stock Market.

NASDAQ Friday Close at 2557

Though the NASDAQ has been acting as the "weak sister" to the indexes, it is noteworthy to mention that for the past 4 weeks the weekly closing prices have all been within 15 points of each other. The highest weekly closing price was 4 weeks ago at 2572, followed by 2562, 2558, and this Friday's 2557. This action certainly points to the fact that the NASDAQ has not participated recently in the rallies or drops in the indexes.

It is possible that if the DOW and SPX do get themselves into a corrective phase that the NASDAQ will be the least affected.

Keep in mind that the NASDAQ has a "cup and handle" formation on the weekly charts that will give it quite a bit of support. Drops down to 2502, on a closing basis, are possible but further drops from there either unlikely or chart busting. With the 2490-2500 level also being where the 20 week MA is at it would be quite negative to have it break below that price.

On Friday the NASDAQ was able to close above the 20-day MA it broke below on Thursday. Rallies up to 2579 should be met with strong selling. Another close below the 20-day MA currently at 2557 will likely vault the NASDAQ down to the 50-day MA and major support at 2505. There is strong support at 2519 and a double low at 2510. Should the 20-day MA be broken, both of those supports will be highly at risk or being broken as well.

Ultimately, though, if the NASDAQ is able to hold above the 2502 level the "cup and handle" formation will continue to loom large and a new up-trend is likely to begin.

S&Poors 500 Friday close at 1515

Eyes continue to be focused on the SPX as it is the one index that has a critical level to break or uphold. The highest daily or weekly close ever has been 1527. This past week the SPX was able to close as high as 1525 but even though it had many attempts to go above that intra-day it failed to get a higher close.

During the past few weeks the SPX chart has been the picture of perfection on the charts as the re-tests of the 20-day MA have managed to maintain the up-trend intact. Since the breakout above the 20-day MA on 3/20/2006 the index has tested this line on 4 different occasions dropping exactly down to the line and bouncing up from it to continue the trend. On Thursday of this past week the drop down to 1505 took the index exactly down to the line and once again it bounced up from it. Any break of that line is likely to be significant.

Intra-day resistance is strong at 1529-1520 and on a closing basis 1525 and major at 1527. Rallies above 1532 could be indicative of furthering of the trend.

By having reached the all-time high as well as having the 20-day MA continue to move up strongly the possible trading range of the SPX has gotten smaller and therefore it is likely that within a week or two some short-term decisions will be seen.

It is my belief that at this time new all-time highs will not be made and that a correction phase is in place. It is also my belief that a break down to the 1472-1476 level will be seen before new intra-day highs are made. A rally back up to 1524-1525 will be met with resistance and a break below 1505 will likely generate strong selling.

Since the SPX has had the most consistent chart it bears watching it as the main index to follow.

The indexes are likely to be strong on Tuesday due to the strong close on Friday. On Wednesday and throughout the rest of the week it is my belief the indexes will get hit and break support lines before the end of the week thus confirming a correction phase.

The information herewith included should only be used by investors who are aware of the risk inherent in securities trading. Mr. De Vito accepts no liability whatsoever for any loss arising from any use of the information and/or comments he supplies.