DOW Friday closing price - 11823

The DOW closed in the red for the first time in the last 9 weeks giving notice that a temporary top may have been found and a corrective phase starting. Nonetheless, the problems that crept up in Egypt on Friday may have been a "temporary" negative catalyst causing traders to take profits worrying that the problems may escalate. If that was the reason for the drop, if the problems are resolved over the weekend the market may resume the uptrend this coming week.

By the same token, the DOW did reach a level of strong psychological as well as previous daily and weekly low close resistance at 12,000 where a correction could be expected to start, not to mention the fact that the index is at an annual time frame period where corrections for the past 10 years have occurred. As such, the probabilities favor the index heading lower this coming week even if the problems in Egypt are fixed..

On a weekly closing basis, resistance is minor to decent at 11893 and again at 12110. Above that level, there is decent resistance at 12767 and strong resistance at 13058. On a daily closing basis, resistance is decent at 11971 and minor to decent at 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 11822, 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.

The DOW got up to the 12,000 level demilitarized zone between 11970 and 12030 every day this past week without being able to break above the top of the zone (a rally on Monday to 11982, on Tuesday to 11985, on Wednesday to 12020, on Thursday to 12019, and on Friday to 12012). The action suggests that the sell off on Friday was more about the inability to rally further than it was about the problems in Egypt. In addition, the economic reports starting with the Durable Goods and Initial Claims on Thursday, as well as the GDP Adv on Friday, all of which came in worse than expected, were likely causes for disappointment at these high levels of price.

The probabilities that the DOW is now in a corrective phase and that follow through to the downside will be seen his coming week are high. The question then becomes " how much of a correction can be expected?". In 2006, the first quarter annual correction was only 366 points and if that is mimicked, the drop would put the index down around the 11750 level. This number fits in well with the fact that 11734/11744 was the previous high weekly close in 2008 as well as the major intra-week and weekly closing high from the year 2000, as such should be considered decent support. In addition, the index always shows "general" support/resistance 300 points above or below an even number, and therefore 11700 should also be considered "general" support.

On the other side of the coin, first quarter corrections have normally been 1,000 points or more as that is what has been seen on 9 of the last 10 years, so if the 11700 level is broken, drops down to 11000 will certainly become possible. By the same token, some decent support will be found at 11500/11515 as that is where the 50-day MA is currently at as well as a level that showed decent resistance for a period of 5 weeks in the Oct/Nov period and should now be considered support. As such, even if 11700 is broken, the bullishness that has surrounded the DOW during the past 6 months could cause the 11500 level to hold this time around, preventing the index from fulfilling the normal correction numbers.

The 20-day and 50-day MA's are good indicators of how strong a trend is. Holding above the 20-day MA is normally seen only when a stock or index is acting like a runaway train, whereas the 50-day MA generally signals a strong longer-term trend. The 20-day MA, currently at 11780, has held up since September with only one exception when the index broke the line and dropped down to the 50-day MA between the 16th and 30th of November. Other than that, the DOW has been on a runaway train course for a period of 4 months. Both of these lines should once again be in play for the next few weeks with the 20-day MA line being a pivot point. A break of that line should take the index down to the 50-day MA, currently at 11515. A break of both of these lines would likely mean a stronger correction phase and bring in the 11,000 level as the most likely objective. At this time, the probabilities suggest that a drop down to the 50-day MA will occur, but that further correction is unlikely unless the economic news continues to show slower growth. Probabilities favor a 300-500 point correction.

Resistance will be decent at the bottom of the demilitarized zone at 11970. Probable trading range for this week is 11970 to 11744.

NASDAQ Friday closing price - 2686

The NASDAQ confirmed last week's failure to follow through with a second close below the Jul/Dec 2008 weekly close resistance level at 2705. The index was also able to test the previous week's high at 2766 with a rally this past week to 2763 as well as go below a previous weeks low for the first time in 11 weeks, suggesting strongly that a temporary top to this rally has been found.

It should also be mentioned that 3 of the 4 main stocks in the NASDAQ (AMZN, AAPL, and GOOG) had negative weeks in spite of the fact that 2 of those stocks has much better than expected earnings reports. Such action strongly suggests a correction phase has begun.

On a weekly closing basis, resistance is now decent at 2755. Above that level there is minor resistance at 2781 and major resistance between 2805 and 2810. On a daily closing basis, resistance is minor at 2709, decent at 2755 and strong at 2765. 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 2652 and minor to decent at 2617. Below that level, support is minor to decent at 2495 and decent to strong between 2460 and 2468.

The NASDAQ gave a sell signal on Friday closing below a previous low daily close of some consequence at 2689. The index only closed 3 points below that level so the sell signal will need to be confirmed on Monday with another red close or otherwise it might be seen as a strong double bottom support. Nonetheless, having traded below the low of the last 2 weeks at 2682 and 2686 with a drop down to 2679 this past week the probabilities are high that follow through to the downside will be seen and the sell signal confirmed.

The NASDAQ fell strongly on Friday in spite of the fact that one of the main stocks in the index (NFLX) had a very strong earnings report on Thursday and made new all-time highs. Nonetheless, AMZN had a negative earnings report and dropped 8% in value while AAPL and GOOG continued their drops after positive earnings reports, suggesting that the most of the main stocks in the index have found their tops and are in a correction mode.

The NASDAQ does not have much support underneath and is likely to get the brunt of the selling as it was the index that led the rally to the upside, and therefore has the largest portion of traders that will likely liquidate their positions. In addition, the index only shows minor weekly close support at 2652 and then nothing at all until 2500 is reached. As such, a break of that level would likely bring in more aggressive selling. Nonetheless the 2645/2652 level does have a bit more importance on the daily chart as not only 2652 is a previous low daily close of some importance but also the 50-day MA is currently at 2645, suggesting that only if the index is seeing strong selling will the line and previous support be broken. As such, the index is likely to once again be a good indicator of weakness of strength this coming week.

Resistance is now likely to be strong up at the 2718 level as it is where the 20 60-minute MA is currently at, but also where the daily closes seen in July and December 2008 are at. It is highly unlikely the index will be able to get above that kind of strong resistance, especially since the 2766 high was already tested successfully with last week's rally to 2763.

It is evident that with weakness being seen in 3 of the 4 main stocks in the index and the 4th stock at levels that are likely fundamentally difficult to support, that the NASDAQ will be receiving the most selling this coming week. In addition, it is the only index that saw a lower low in the weekly chart for the last 11 weeks and most likely to be in a corrective phase. As such, the trader's attention will likely be centered on what happens at the 2645/2652 level, which is likely to be compared with the 11734/11744 level in the DOW. Probabilities do favor a drop down to that level, but what happens there is anyone's guess right now. Possible trading range for the week is 2645 to 2718.

SPX Friday closing price - 1276

The SPX had a reversal week making new 28-month highs and closing in the red. In addition, the index gave a sell signal on the daily chart closing below the most recent low daily close at 1280. On a weekly closing basis, the close seen 3 weeks ago at 1293 was confirmed as a successful retest of the August 2008 weekly closing high at 1298 when it closed in the red for the second week in a row.

The SPX has continued to lag the other indexes as earnings reports in the financial industry were mostly negative this past week, suggesting that the financial industry is not showing the growth seen in other industries. With few financial companies still due to report, the probabilities favor the index heading lower.

On a weekly closing basis, resistance is decent at 1293 and 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 very minor at 1285, decent at 1295 and strong at 1299/1300. 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 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 did make a new 28-month intra-week high this past week but it was not impressive inasmuch as it is the only index that has failed to get above the Aug08 highs. The weakness shown, in comparison to the other indexes, suggests that the SPX has been pulled up by the other indexes rather than leading the way. This was even more evident when most of the earnings reports on its main stocks have come in less than expected, compared with better than expected in stocks in the NASDAQ and the DOW.

It should be mentioned that the SPX was able to get below the 20-day MA on Friday, currently at 1280 and is now highly likely to drop down to the 50-day MA which is currently at 1250. Nonetheless, the support at that price is only from the MA line and not from any previous intra-week lows of consequence, making the support highly vulnerable for a break. No support of consequence is found on the daily chart until 1226/1232 is reached and even then the support there can only be classified as minor to perhaps decent. Strong support is found on the weekly chart at 1200.

The SPX could be a drag for the other indexes inasmuch as the bullishness in the market is not as strong in this index as it is or has been in the others. From that perspective, the break this past week could be indicative of a decent correction to occur. Certainly a break below the 50-day MA and a drop down to the 1200 level would mean a correction of about 8%. If the same thing is seen in the DOW, drops down to the 11,000 level could occur. As such, the SPX is likely to be the index to watch this week to see what happens at the 50-day MA.

Though it is likely that the indexes have found a temporary top to this rally, questions still abound as to how much of a correction will occur. The indexes have shown extraordinarily strength since September and there has yet to be any strong fundamental reason for the indexes to go down sharply. Buying is still being seen on dips and will continue to be seen as long as the fundamental picture does not change much.

A large portion of the important earnings reports are out already and even though many continue to come out better than expected positive reaction has started to ebb. This week there is one economic report of importance due out on Tuesday in the ISM Index. It is expected to come out very slightly lower than last month's 58.5% (expected at 58.2%). Either way, it is unlikely the index will have much of an effect unless it comes out substantially lower or substantially higher. The high for the last 16 years has been 60.8% so there is little room to the upside for much more.

At these price levels in the indexes it is a fundamental battle as far as how much has already been factored into the price and how much more can be accomplished. Certainly the fact the Fed will continue with zero interest rates makes the short side difficult to achieve, by the same token with Unemployment still at 9.4%, the buying power of the people has to be limited and further buying is also difficult to achieve.