DOW Friday closing price - 12143

The DOW had a total reversal of the short-term uptrend caused by the lack of compromise on the debt ceiling issue. The bulls were unable to generate any technical buying after the previous week's close on the highs of the week and the index fell strongly throughout the week (5 red days in a row), and in the process gave a small sell signal on the daily closing chart when the index closed below the most recent low daily close at 12476. The sell signal was "small" inasmuch as the 12476 daily closing low was not a spike low or even an important support. Nonetheless, the sell signal does put the onus back on the shoulders of the bulls this coming week, at least from a technical perspective.

With the red close on Friday the DOW now shows 2 successful retests of the 36-month weekly high close at 12810, giving that resistance level added strength. With the uptrend now likely stunted and the index likely to be back into at least a sideways trading range (technically speaking), this coming week promises to be very important as the support at 12000 is likely to be tested.

On a weekly closing basis, resistance is minor at 12391, decent at 12681, and at 12810. On a daily closing basis, resistance is decent at 12385/12391, minor at 12569 and decent to strong at 12719/12724. Above that level, resistance is strong at 12810. On a weekly closing basis, support is decent between 11858 and 11934. Below that there is no support until minor to decent support is reached at 11110. On a daily closing basis, support is minor at 12058, decent at 11897, and decent to strong at 11613. Below that level, there is no support until minor support is reached at 11052.

The DOW was under selling pressure all week, mainly due to the lack of compromise on the debt ceiling issue, and on Thursday the index broke below both the 50 and 100 day MA's, both currently between 12320 and 12350. The index was able to hold those MA's lines on Thursday, at least on a daily closing basis, but Friday's economic numbers were worse than expected and showed that the economy is slowing down more than had been anticipated and with no progress on the debt issue the flood gates opened causing the index to make new 4-week lows and generating a close below those MA's as well as near the lows of the week.

Technically speaking the action this past week suggests further downside will be seen with the 200-day MA, currently at 12000, as the first and possibly main objective, at least for Monday and Tuesday's action. Nonetheless, holding that support level will likely depend on whether the debt ceiling issue is resolved and just as important resolved in time for the August 2nd deadline. The 12000 level is a strong psychological support and it is unlikely that it will get broken until something negative gets "defined" on the debt ceiling issue. By the same token, if the index starts trading below that level the technical selling will increase.

The DOW had a 596 point trading range this past week (12083 to 12679), closed near the lows of the week, and the economic news on Friday was dismal, suggesting that if no resolution between the Democrats and Republicans is found by Tuesday that another 600+ point trading range to the downside could be seen this week. With the 12300 level now being a decent resistance, drops down to 11700 are certainly a viable possibility if the index starts trading below 12000. Support will be found at the most recent low seen 4 weeks ago at 11862 but that support is considered decent at best and not likely to hold up if the selling continues to be strong. It should be noted that the 11700 level is a viable chart objective but it panic selling is being seen it could be broken and below that level there is no support of consequence until the 11100 level is reached.

The debt ceiling issue continues to be a strong deciding factor this coming week and if resolved some relief buying will likely be seen causing the DOW to recover some of the recent drop. Minor resistance will be found at 12300, stronger resistance on a daily closing basis will be found at the 50 and 100 day MA, currently at 12320 and 12350 respectively, and decent resistance is found between 12391 and 12426. Prior to Friday's economic numbers, those levels were not likely to offer much resistance if the debt ceiling issue was resolved, but now they will likely have some strength as the economy is showing weakness without the debt ceiling issues. Under this scenario, and it is a scenario that will likely continue in effect until the next GDP number comes out, selling will now likely appear at the resistance levels mentioned.

Supposing that a compromise is found between the parties by Tuesday's deadline, the chart suggests that a 12000 to 12320 trading range will be seen this coming week.

NASDAQ Friday closing price - 2756

The NASDAQ, like the other indexes, also shows a successful retest of the recent highs as well as a small sell signal on the daily closing chart suggesting that further downside will be seen this coming week. Nonetheless, the NASDAQ chart shows a much more telling negative chart sign inasmuch as the close on Friday, being a monthly close, has given a double confirmation that a major double top on the monthly chart at 2859/2873 now exists. The index generated a monthly close back in Oct07 at 2859 and a close in Apr11 at 2873. With now 3 subsequent lower closes in May, June, and on Friday July, at 2835, 2773, and 2756 respectively, the index has strengthened the double top considerably. This is especially indicative since 3 out of the last 4 months the index has traded intra-month slightly above to the Oct07 high at 2861 without being able to generate further upside or establish a beachhead above the level. Such action, in an index that has been the well-defined leader during the last 3 years of this rally, suggests that a major top of importance has been built.

In addition, the NASDAQ closed near the lows of the month suggesting that further downside will be seen in August, below last month's low at 2724. With no monthly support found until the 2600 level is seen, it is going to be technically difficult for the bulls to generate the kind of a rally needed to overcome these negatives, at least for the next month.

On a weekly closing basis, resistance is minor at 2833, decent at 2858 and strong at 2873. Above that level, resistance is not found until the psychological 3000 level is reached. On a daily closing basis, resistance is minor to decent at 2835, decent at 2858 and strong at 2871/2873. On a weekly closing basis, support is minor at 2689 and at 2643 and decent to strong at 2616. On a daily closing basis, minor support is found between 2735 and 2746, decent support at 2686 and strong support at 2616.

The NASDAQ continued to maintain some leadership among the indexes being the only index that did not close below the 50 and 100 day MA's in an indicative way, currently at 2753 and 2763 respectively. In addition, the index did close below the most recent low daily close at 2763 but only did it by 7 points, suggesting that if there is any agreement between the Democrats and Republicans over the weekend that the index will rally and close higher on Monday, showing Friday's close to be a successful retest of those levels.

Due to the close near the lows of the week it is very likely that further downside intra-week will also be seen in the NASDAQ as well as in the other indexes. Nonetheless, just like last week when the indexes closed near the highs but opened lower on Monday, much will be dependent on the news over the weekend about the debt ceiling issue. The opposite could definitely occur. There was news on Sunday morning that the parties were close to an agreement and if that is truly the case the possibilities will be high that the indexes will open higher on Monday.

The NASDAQ does show decent support on both the daily and weekly charts at the 2700 level and strong support down at the 2600 level, with 2616 on a daily and weekly closing basis being absolutely important for the bulls. The 2700 level must also be considered a pivot point as a break below that level would likely thrust the index down to the strong support below. Based on technicals alone, the index should show further weakness and a drop down to at least the 2705 level, which is commensurate with 12000 in the DOW.

As far as resistance is concerned, the NASDAQ is showing a gap down opening on Wednesday between 2832 and 2823 and I do believe that gap could be very indicative. With such a strong resistance level having been built and the economic news starting to show a strong slow down in the economy the gap could be a breakaway gap. If the debt ceiling issue is resolved it is highly likely that the indexes will rally on that news alone. Nonetheless, the rally now has a good chance of being stunted because of the negative economic reports that came out on Friday. Intra-week resistance on the chart is found between 2800 and 2815 as it is, but the gap could be a big key to what the indexes will do after the initial euphoria of a debt compromise wears away. The gap is 67 points higher from Friday's close and the probabilities are high that the gap will be tested if that issue gets resolved. Filling the gap would have to be considered a positive but if the indexes rally on positive news of a compromise and the index gets above 2800 but fails to close the gap at 2832 it will be considered a strong negative sign and strong technical selling will likely be seen. I do believe that could be the clue/key to what to expect from the indexes after the compromise gets done.

From a purely chart perspective, the probabilities favor at 2705 to 2765 trading range this coming week. Below 2700 further downside will be seen, likely down to 2600, and above 2840 further upside will likely be seen, breaking above the strong resistance at 2873 and likely up to the 2970 level. This coming week has to be considered a very pivotal week.

SPX Friday closing price - 1292

The SPX has now built what can be considered a picture perfect Head & Shoulders formation with the left shoulder being the 1344 high seen in February, the Head is the 1370 high seen in May, and the right shoulder is the 1356 high seen the first week of July. The neckline is the line drawn from the 1249 low seen in March to the 1258 low seen in June. A break below 1258 would give an objective of 1146. It can be argued that the H&S formation has not been built entirely from technical trading as much of the weakness seen this past week was due to a fundamental issue that may be resolved on Tuesday. Nonetheless, the right shoulder was formed previous to this issue being relevant and therefore the probabilities are decent the formation is valid.

The SPX, much like the DOW, gave a small sell signal this past week closing below the most recent low weekly close at 1316. In addition, the index did close on the lows of the week and below a decent psychological support at 1300 suggesting that further downside will be seen with the 50-week MA, currently at 1258, being the objective.

On a weekly closing basis, resistance is decent to possibly strong at 1343/1345 and decent to strong at 1363. On a daily closing basis, minor resistance is found at 1315, minor to decent at 1336, and decent at 1343/1345. Above that level resistance is decent at 1356 and strong at 1363. On a weekly closing basis, support is minor at 1279 and decent at 1268. On a daily closing basis, support is minor at 1276, decent at 1265, and decent to strong at 1256.

The SPX got down to the 200-day MA on Friday, currently at 1285, and held the line rallying a bit at the end of the day to close above the line by 7 points. The 200-day MA is considered an important support line and it should be mentioned that it has not been broken since the index got above it on September 13th of last year. It is interesting to note that the 200-day MA was broken on August 11th of last year and the index stayed below the line for 4 weeks before moving back above it. With the time frame being very similar to last year and the economic news being dismal, the probabilities seem to favor the line breaking sometime over the next week or two. Nonetheless, if the debt ceiling issue is resolved this weekend, the index is likely to rally first and then the question will be "how much of a rally will be seen, and will it be enough to prevent a break of the line from happening".

Resistance on the SPX is at found at the 50 and 100 day MA's currently at 1307 and 1316 respectively. With no other resistance at that level, other than MA lines, it will be indicative if the index is unable to close above that level any day this week, especially if the debt ceiling issue is resolved. From a previous intra-week resistance, no resistance of consequence is found until 1345 is reached. On the daily chart, some resistance is found at 1335, but the fact remains that if the index is unable to close above 1316, it will be considered a negative sign.

On a purely technical perspective, the index should head lower this week with the 50-week MA, currently at 1258, as the objective. Nonetheless, that would mean that the 200-day MA at 1285 would be broken, as such, it is likely that 1285 will be a pivot point this week, as well as an indication of general weakness.

Once again, like it is mentioned above, so much depends on what gets resolved this weekend between the Democrats and Republicans. Nonetheless, with the negative economic reports on Monday, the 1316 level, on a daily closing basis, seems to have become a possible technical pivot point if the issue on the debt ceiling is resolved.

A new catalyst was thrown into the fray this week when the GDP Advance number came out very weak on Friday. In addition, the inflation number in the report was high as well possibly curbing thoughts that a QE3 would be done if the economy continues to weaken. As such, no longer is the debt ceiling issue the only major concern to the market. The probabilities of the debt ceiling being resolved took a turn for the better on Sunday when it was reported that the two parties were close to an agreement. If that does happen by Tuesday, a rally in the market can be expected. Nonetheless, the amount of rally will now be very important because of the issues mentioned above.

This is now the 4th week of the summer earnings quarter and it is about now that the earnings reports start losing some of their impact, especially since all the "biggies" have come out. In addition, the indexes still find themselves in the seasonal period between July and October where weakness is generally found, making the possibility of further downside over the next 4-6 weeks still very viable, from a purely technical/seasonal basis.

This coming week, other than the debt ceiling issue on Tuesday, there are no economic or earnings reports of major consequence due out and therefore the action will once again turn to the technical side. As such, chart action this week is likely to be indicative of what the market will do for the next 4-6 weeks. If the reports that came out on Friday are to be believed to be precursors to what is coming, the possibility of the recent lows in the indexes being broken is high. By the same token, if the "only" thing that has held the market back was the debt ceiling issue then the indexes should turn around this week and resume the strength seen the previous week. It is a pivotal week for sure.