DOW Friday closing price - 10817

The DOW continued the recent downtrend generating the 4th red weekly close in a row, below the 100-week MA, and close to the 200-week MA, currently at 10715. The 200-week MA is an important line that is often the delineator of the mid to long-term trend and a break of that line, on a weekly closing basis, would suggest not only that the uptrend has stopped but that a downtrend has begun. The action this past week was especially suggestive of weakness inasmuch as the index was able to go above last week's high at 11434 but failed to reach the 50-week MA at 11810, which would have suggested a sideways trend.

With the close on Friday on the lows of the week and having shown another volatile week with a trading range of over 700 points, the DOW is now at risk of dropping and closing below the 10300 level this coming week if the previous low seen 2 weeks ago at 10603 does not hold up. A close below 10300 next Friday would signal a 20% correction from the highs and that is a recognized sign that the trend has changed and that a recession has begun once again (Double Dip).

On a weekly closing basis, resistance is minor between 11075 and 11100, minor to decent at 11204, and decent at 11734. On a daily closing basis, resistance is minor at 1139 and minor to decent between 11444 and 11483. Above that level, minor resistance is found at 11613 and decent at 12000. On a weekly closing basis, support is minor between 10618 and 10653, minor again at 10150 and 10012, and minor once more at 9931. Below that level, decent to strong support is found at 9686. On a daily closing basis, support is minor to perhaps decent at 10719 and then nothing over the last year is found until the 10000 level is reached.

The bulls were able to generate a rally in the DOW at the beginning of the week due to the positive bounce that was seen at the end of the previous week. The rally gained a bit of steam when the previous week's high at 11434 was broken giving hope to the bulls that they could get the index to close above the previous weekly low close of consequence at 11613 (11555 on an intra-week basis) and negate the break. Nonetheless, the bulls ran into strong selling as soon as they got above the 11500 level (got up to 11529) and the index faltered to close in the middle of that day's trading range. The following morning more negative news came out regarding the economy as well as news that even Germany was starting to show strong signs of a slowdown and the bulls lost whatever momentum they had gained and the index fell strongly the rest of the week.

The drop seen this past week in the DOW did not come as a surprise, at least not technically, as the negative economic news that has come out over the past few weeks suggests that the economy is slowing down and that the growth expected previously is not likely to be seen at this time. The probabilities strongly favored a sideways trading range for a couple of weeks between 10700 and 11500 until the next round of important economic news came out with the traders hoping the news in the next set of reports would not be as negative as it has been. Nonetheless, that scenario is now at risk of unraveling as the index dropped in a worrisome fashion the last 2 days of the week based on the fact that the entire world (not just the U.S.) is now giving signs that recessionary pressures are building. The strong increase in the VIX at the end of the week, the 584 point down day on Thursday, and the close on the lows of the week on Friday have opened the door for any further negative news this coming week causing the flood gates to open to the downside and a recession signal given.

The DOW is likely to get down to at least the 10715 level this week where the 200-week MA is located. Nonetheless, being a weekly MA the intra-week moves are not all that important, meaning that the index could see lower prices during the week and still close at that area next Friday and not cause a break of the line. General support always exists in the 300 point area above and below a major number, so the 10700 level will likely show general support as well. The recent low at 10603 will seen as support as well and if the index is to trade sideways until the next set of reports come out, a retest of that level had to be expected. A drop down to around the 10700 level and a bounce thereafter would be considered a retest of that low. As such, the most likely scenario, if no new negative news comes out, is for the index to trade down to 10700 and bounce from there to close near the 11000 level next Friday. Any divergence to the downside from this scenario would likely mean bad news.

To the upside, Friday's high in the DOW at 11086 will now be important on Monday as a rally above that level will mean that the downside retest of the lows is over and was successful, and the traders will likely get back to trading the 10700 to 11500 trading range until the next set of reports come out. At this time, there is no other scenario for Monday that would take the selling pressure away from the downside.

To the downside, there is one added scenario that needs to be mentioned. The DOW spiked down on Thursday and traded sideways to slightly lower on Friday, building an inverted flag formation on the 60-minute chart that was broken in the last hour of trading, giving a downside objective of 10562. For this flag to be successful the index would need to open lower on Monday and go straight down and break below the previous low seen 2 weeks ago at 10602 in the first or at the latest the second hour of trading. Such a scenario is possible due to the weak close on Friday. A break below the recent low at 10603 would be very scary to the bulls and likely trigger stop losses that have recently been placed below that low likely causing much further downside to occur. Nonetheless, keeping in mind that the previous low of consequence in the index was "11555", it would be "karma" if the index dropped exactly 1000 points down to "10555" (close to the flag objective of 10562) and stopped. I mention this scenario because it is possible that the previous low at 10603 will break as it was not a support level previously and has a high likelihood of breaking if the 10700 level breaks. What would be negative is a drop down below 10300, but anything above that level would not be "especially" negative. A thought to keep in mind!

I am personally leaning toward a break of 10603 happening, a drop down to around the mid 10500 level and a rally on Monday to close in the red but off the lows and around the 10700 level. I do believe the market is weak right now and at least on a short-term downtrend and support levels are not likely to hold up well. Nonetheless, I don't think that the recession is yet a fact and won't likely be until the next set of economic reports comes out. This particular scenario, of course, is dependent on no further negative news from Europe being seen over the weekend.

NASDAQ Friday closing price - 2341

Once again the NASDAQ got the brunt of selling this past week having dropped close to 8% in value whereas the DOW dropped 6.5% and the SPX only 5%. It is evident that the selling has gotten very serious as it is being seen at the heart of where the buying had been concentrated on for the past 3 years, in the tech sector. What this suggests is that the up-trend has definitely changed and that the long-term rosy projections that were being given as shortly as just a few weeks ago have now been dismissed totally. Simply stated, up-trend is over for now.

The NASDAQ, unlike the other indexes, closed below the low daily close seen a week ago at 2357 when panic selling was rampant, giving notice that the rally seen over the past week was simply short-covering and not new buying on a dip, as had been seen the past 3 years. With no support whatsoever seen on either the daily and weekly chart until the 200-week MA is reached, currently at 2250, further downside is expected to be seen this week. In addition, should the index close below 2309, especially on both a daily and weekly closing basis, a recession signal will be given as 2309 is a 20% correction from the highs.

On a weekly closing basis, resistance is now minor to decent at 2452, and decent to strong at 2530. On a daily closing basis, resistance is very minor at 2357 and at 2381, minor to decent at 2482, and decent to strong at 2555. On a weekly closing basis, support is very minor at 2326, minor at 2212, and minor to decent between 2141 and 2153. Below that, decent to strong support is found at 2096. On a daily closing basis, very minor support is found at 2326, minor to perhaps decent between 2292 and 2308 and minor to decent again at 2265.

The NASDAQ was the strongest index at the beginning of the week generating a rally up to and very slightly above the May08 high at 2551 and the Apr10 high at 2535 (got up to 2555), contrary to what the other indexes were able to do. Nonetheless, the index was unable to hold on to the strength seen and sold off in a strong fashion, causing the high of the week to become a strong resistance level for the future and suggesting that further upside will be close to impossible to achieve at this time. Having this week's high become a strong, and possibly even major, resistance has to be strongly deflating for the bulls as their risk/reward ratio from these levels is negative. Because of this fact alone, the index outperformed the others on the way down due to liquidation of long-term positions.

The NASDAQ finds itself in a precarious situation inasmuch as the probabilities of giving a recession signal this week, with a drop and close below 2309, are high. The 2309 level represents a 20% correction from the highs and that is an established ratio signaling a change of trend and likely recession. With no support of consequence underneath until the 200-week MA at 2250 is reached, the probabilities are very high that signal will be given this coming week.

It should also be noted that 3 of 5 major stocks in the index (GOOG, FSLR, and AMZN) have broken important supports and given strong sell signals and the other 2 (AAPL and NFLX) will do the same if further downside is seen this week as they closed on Friday near important supports. As such, with the large portion of the stocks that helped the index be the leader on the way up now giving strong sell signals, the probabilities of the stock recovering from what happened this past week are low.

The NASDAQ closed on the lows of the week and only 7 points away from the previous week's low, suggesting that a new 11-month low will be made this coming week. Support underneath is minor around the 2300 level with some support being found on a daily closing basis at 2292 and 2308. The 2308 level is the most interesting of the two as a close there would be a 20% correction from the highs. Nonetheless, the support there is minor and drops down to the 2200 level, where the support is stronger, are possible and perhaps even likely. The 200-week MA, currently at 2250, is definitely a likely objective as that line has been very important throughout the years. Nonetheless, being a weekly MA, it may not stand up during the week, allowing drops as low as 2200 to occur if the 2300 level is broken.

To the upside, the NASDAQ did gap down this week between 2488 and 2437 and that gap is going to be difficult to close, especially since there is a minor but somewhat indicative low at 2459 that will also act as resistance. As such, it can be said that the index will need a lot of positive news to be able to get above 2450/2459 in the near future. The probabilities don't favor that happening. It should also be mentioned that the gap seen this week is the second gap, with the first one happening July 27th between 2832 and 2822, making these two gaps likely a breakaway and runaway gap formation that if confirmed would suggest a possible long-term drop down to the 2000 area at least. Should the runaway gap be closed, of course it would change the outlook for the index dramatically.

Outlook for the NASDAQ is grim and it will be interesting to see if the recession signal is given in this index will it be followed by the same signals in the other two.

SPX Friday closing price - 1123

The SPX had a very negative week even though the index only fell 5% (compared to the other indexes falling 6.5% and 7.5%) and the financials did NOT lead the way down. Nonetheless, the index was the only one of the 3 that closed "below" the 200-week MA this week, currently at 1150, giving notice that the market has now officially broken the uptrend. This same negative did not happen this week with either the DOW or the NASDAQ but it is likely an omen of what is to come this week if there is no positive news and the recent selling pressure continues. If the break of the line is confirmed next week with another close below 1150, the other indexes are likely to follow and likely cause drops down to the 1000 level to be seen before the end of the year.

The SPX did get a chance to redeem itself early in the week when a rally above the 1200 level was seen. Nonetheless, the high seen in April of last year at 1217 was not broken (index got as high as 1208 this week) and the disappointment was tangible causing the index to drop strongly to close on the lows of the week with further downside expected to be seen this week. A break below last week's low at 1101 will likely cause the index to fall to the next support between 1040 and 1044 and in the process give a recession signal as a 20% drop in price from the highs is at 1096.

On a weekly closing basis, resistance is minor at 1189 and decent at 1217. On a daily closing basis, minor resistance is found at 1172 and decent resistance at 1204. Above that level, minor resistance at 1225, and decent again at 1256. On a weekly closing basis, support is minor between 1117 and 1121, decent at 1066 and strong at 1022. On a daily closing basis, support is minor between 1119 and 1121, and then nothing below until 1047 is reached.

Though the SPX did not fall, percentage-wise, as much as the other indexes, the break of the 200-week MA is important. In addition, the index finds itself with no support of consequence below until the mid 1000's are reached. The index has shown a bit of minor support, on a daily closing basis, at 1119/1120 as those have been the recent low daily closes during the last week. This level is somewhat additionally supported with 2 high weekly closes of some consequence from June and August of last week in the same area. Nonetheless, the support is considered minor and likely to break.

By the same token, with the indexes being the least sold on Friday and the financials holding up well that day as well, it is likely the traders will try to make a stand on Monday through the SPX and at these levels. As such, the 1117 to 1123 (where the index closed on Friday) level, on a daily closing basis, is important for Monday. If the index closes below 1117 on Monday, it is unlikely the bulls will be successful is stopping the index from going below 1100 and giving a change of trend signal by dropping 20% in value from the highs. In this respect, the SPX is likely to be a key to Monday's trading.

To the upside, if the SPX can get above Friday's high at 1154 and also close in the green a lot of sell pressure will be relieved. Nonetheless, a daily close above 1204 is still needed for the selling pressure to be relieved completely. Probabilities favor the downside.

A new recession is now a viable event as even the most positive analysts are calling for a 33% chance of recession, while the most negative ones are saying it is 100%. The economic numbers coming out recently certainly show that the economy has slowed to a crawl though some progress (upward movement) is still being seen. If the U.S. was the only factor involved, the possibility of averting the recession would be better, but it seems the entire world is facing a recession and the chances of the U.S. being the only one that will not be affected is remote at best.

Europe is facing a terrible crisis and it seems the best option for them is to simply raze everything down and start from scratch leaving the problem countries out of the equation. That is certainly a decent option for the far future, but short-term that would be disastrous. China is now officially in a recession as their stock market has now fallen much more than the 20% that is normally the ratio used. Our own future seems to be dependent on the Democrats and Republicans acting in a bipartisan way, but that also seems like a pipe dream, at least until the next election at the end of next year. Simply stated, it seems pain is coming our way and there is little that can be done to avert it.

The possibility of this correction being a seasonal correction is losing steam by the minute and now it is starting to look like "August" 2008 when the indexes began to fall strongly with the DOW getting to 6470 just 7 months later. That won't be known for sure for another few weeks, but the probabilities continue to rise every day and with no evident way to relieve the recessionary pressures being seen, it feels more like it is not an "if" but a "when". With the indexes having closed on their lows for the week on Friday, it is possible that as soon as Monday and most likely by the end of the week, a strong clue, if not confirmation, will be given. It is starting to look more likely that the traders will not wait for the next set of economic reports to "throw in the towel". Hopefully that is not the case.