DOW Friday closing price - 11787

The DOW was able to accomplish a break out of sorts having closed above the "major" high weekly close from the year 2000 at 11738 as well as above the August 2008 weekly close at 11734. The ability of the bulls to have accomplished such a feat in the face of low volume, strong resistance levels, and an overbought condition is testament to the unwavering belief that as long as the Fed maintains interest rates at zero, thus helping big business to generate high profits, the market will continue to trend higher.

The breakout in the DOW is not likely to bring in aggressive new buying but it will keep the bears on the sidelines waiting for some negative catalyst to be discovered. In addition, it does take away some of the chart restraints that were in effect due to the strong nature of the previous resistance at these prices, thus opening the door for some additional upside this coming week.

On a weekly closing basis, resistance is minor to decent between 11893 and 12110. Above that level, there is decent resistance at 12767 and strong resistance at 13058. On a daily closing basis, resistance is minor at 11983, and minor to decent between 11970 and 12050. On a weekly closing basis, support is very minor at 11221, decent between 11098 and 11101, and decent at the 200-week MA, currently at 10930. On a daily closing basis, support is very minor at 11731 and minor to decent at 11637. Additional support is minor at 11555/11565, and again at 11478. Below that level, support is minor between 11362 and 11372, minor at 11114, and minor again at 11036. Strong support is found between 10979 and 11008.

There are no decent to strong resistance levels in the DOW until it gets close to 13000, but there are several minor to decent resistance levels from previous important low closes starting at 11893 and up to 12050. In a an overbought condition such as presently exists, the previous low closes will likely carry a bit of extra strength, and certainly the psychological strength of the 12000 level should be a factor. By the same token, unless there is some negative fundamental piece of news, the probabilities are high that further upside will be seen this coming week, with 12000 as the main objective.

One thing that will be hanging over the DOW at this time is that the bears have been totally inefficient in generating any selling or even volatility in trading. By the same token, the focus for the next 2-3 weeks will be on earnings reports and that is something that will likely bring volatility in and of itself as the reports come out. This coming week quite a few of the "biggies" are due out with GS. AAPL, IBM, and GOOG. Nonetheless, in these 4 particular cases, the probabilities continue to favor good earnings as these companies have shown the ability to generate profits throughout the last 6 months. Whether continued good earnings will generate further upside, or whether they are already somewhat factored into the prices, is difficult to say at this time.

The DOW will now find decent support at the previous highs it broke, around 11700, and much stronger support at the 11450/11500 level where it spent quite a bit of time in December. Very strong support will now be found around the 11000 to 11100 level. Probabilities favor the index trading between 11000 and 12000 for the next 2-3 months, but for the next 2-3 weeks, the index should not get below 11450.

Since so much will be dependant on how the earnings reports come out this week, it is impossible as of this writing to give decent probability numbers for the week. Nonetheless, with nothing of consequence due out until Monday after the close, it is likely the DOW will trade higher on Monday, with 11867 (intra-week high seen in August 2008) or even up to 11893 (low weekly close seen in Mch08) as possible objectives. Last week's low at 11573 should be decent support and not likely seen unless the earnings reports are disappointing. Possible low for Monday, or even for the week, could be 11635.

NASDAQ Friday closing price - 2755

The NASDAQ had the most impressive week of all the indexes having been able to get above the highs made in March and December 2007 to get within 3.9% (110 points) of the 10 year-high seen in October 2007 at 2866. In comparison, the other indexes are still within 18-19% away from their respective highs.

It is evident that the large bulk of the buying seen over the past 22 months has been in the general market and not in the Blue Chip or Financial areas. This fact is somewhat surprising inasmuch as the small business owner is still underwater, compared to the strong large multi-national corporations that have been the recipients of most of the Fed bailout money.

On a weekly closing basis, resistance is minor at 2781 and strong between 2805 and 2810. Above that level, there is no resistance of consequence until the 4300 level is reached. On a daily closing basis, decent resistance is seen at 2800, and again between 2811 and 2825. Above that level, major resistance is found at 2859. On a weekly closing basis, support is minor at 2518. Below that, there is minor support at 2445, very minor at 2373, and decent to strong between 2212 and 2239. On a daily closing basis, support is minor at 2703 and again at 2652. Below that level, support is minor to decent at 2617, minor to decent at 2495 and decent to strong between 2460 and 2468.

The NASDAQ now finds itself likely to reach the highs seen at the end of the last bull market in 2007 up in the 2800 area. From many fundamental perspectives this seems almost unbelievable, but the fact remains the index is now only 3.9% from those highs and having closed on the high of the day and the week on Friday, follow through to the upside is expected to be seen this coming week. The index shows absolutely no resistance until the 2800 level is reached and that is only 45 points away from Friday's close. The probabilities of that level being reached on Monday are high.

The NASDAQ has now rallied higher 18 of the last 20 weeks (small blip down 2 weeks in mid November) and finds itself in an extreme overbought condition with RSI and Stochastics at the top of the charts. The most incredible thing is that the volume for those 20 weeks, with the exception of the very first week, has been lower than it was during the entire 2010 prior, suggesting that the rally has been mainly hedge and mutual funds and not the general investing public.

It is unlikely that such a situation can continue much further unless earnings surprises in the big NASDAQ stocks, such as AAPL, GOOG, NFLX and AMZN continue to be "aggressively" better than anticipated, such as they all were during the past 2 earnings reports. Two of those companies report this coming week (AAPL - Tuesday afternoon and GOOG - Thursday afternoon) and therefore close watch should be kept to see if, and to what degree, the earnings beat expectations. If those companies show any kind of disappointing results (less than anticipated) the probabilities of the index finding a top to this incredible rally will be high. By the same token, Monday and Tuesday trading should keep the index moving higher until those reports come out.

The NASDAQ does not show much support of consequence until the 2500 level is reached, as such, if a top is found a drop of 10% in value could easily be seen over a very short period of time. The NASDAQ shows that the 20-day MA as well as the most recent low of "any" consequence, are both around 2663 and if broken drops down to the 20 week MA, currently around 2525, would likely be seen. It must also be mentioned that the volume for the last 20 weeks has consistently been less than the volume seen in the rest of 2010, suggesting that the rally does not have stong legs underneath and that any negative piece of news could turn the index around on a dime.

Probabilities favor strength on Monday and Tuesday and then total dependance on the earnings reports due out Tuesday and Thursday.

SPX Friday closing price - 1293

The SPX continued its upward climb closing once again higher than the previous week but still slightly below the August 2008 weekly closing high at 1298. Nonetheless, it is evident that the index persists as the laggard inasmuch as the index generated a weekly close on Friday "below" the Aug08 high close whereas the DOW was able to close above. This happened in spite of a positive earnings report from JPM.

The SPX will see the large brunt of financial earnings reports this coming week with GS, MS, WFC, BAC, and C reporting. As such, by the end of the week a clear fundamental picture should be seen as to what to expect the index to do for the next quarter.

On a weekly closing basis, resistance is decent to strong at 1298. Above that level there is minor resistance at 1325 and then nothing of consequence until the 1400 level is reached. On a daily closing basis, resistance is decent to strong between 1300 and 1305, very minor at 1325 and then nothing until 1395. On a weekly closing basis, support is minor at the 200-week MA, currently at 1190. Below that level there is no support until the 50-week MA is reached, currently at 1121. On a daily closing basis, support is very minor at 1283, minor to decent at 1267 and minor again at 1255. Below that, there is minor support at 1235, very minor at 1223 and decent to perhaps strong between 1178 and 1184.

The SPX is likely to be a good indicator this coming week, inasmuch as it still has a decent resistance level above (1300), that is both from previous highs as well as psychological. In addition, with the bulk of the financial earnings reports due out this week, some fundamental decision may be made regarding the outlook for the rest of the year.

To the downside, last week's low at 1262 has to be considered important as the index has not yet been able to get below a previous week's low for the past 7 weeks, and any change from that pattern is likely to be indicative. As such, it can be said the SPX is now in a trading range of some consequence between 1262 and 1313 which at this time have to be considered important support/resistance levels. With so many important earnings reports due out this week, not only in the financial sector, but in stocks that have previously pushed the NASDAQ to its high levels, it is possible and perhaps even likely that some determination of consequence will be made this coming week.

The indexes, in general, were able to give chart-reasons to believe that further upside may be coming as levels of resistance of consequence were broken this past week. Nonetheless, one of the main reasons for the strong rally the past 6 months has been strong earnings reports by companies that tend to lead the way in the market, companies such as AAPL, GOOG, and others like them. As such, the earnings are likely to continue to dictate what the market will do from here on in.

Already, 2 of the important companies reported earnings this past week with INTC and JPM coming out with better than expected earnings, and it was one of the reasons the market was successful in breaking resistance levels on Friday. This coming week, though, a there are much more important earnings reports due out that are much more likely to dictate direction than what was seen last week. As such, it can be said the market is likely to "pivot" on how those reports come out and NOT on what the charts suggest may happen. The overbought condition of the market and the lack of built support close by will tend to favor the downside, but on the opposite side, the earnings reports will have to be disappointing in order to stop the momentum that has been all up during the last 2 months.

One thing that must be kept in mind is that every year for the last 10 years, even on the years the indexes were trending higher, the indexes saw some kind of a drop in the first quarter of the year with the high prior to the drop being seen somewhere between the first week of January to as far back as the first week of March, with 90% of them coming in before the second week of February. As such, the beginning of a drop/correction should be expected to be seen sometime over the next 1-4 weeks. The drop, using the DOW as the example, could be as small as the 380 points seen between January 2nd and January 22nd 2006 from a high of 11047 to a low of 10666, or as much as the 2650 point drop seen between January 10th and March 1st, 2000 from 11750 to 9109. It should be mentioned that even in the years the index went on to make new highs later on in the year, the drop was generally around 1000 points. Either way, the probabilities favor some kind of a drop beginning soon.