DOW Friday closing price - 12092

The DOW closed above the 12,000 level for the first time since the first week in June 2008, resuming the uptrend after the index had a very short 1-week pause due to the problems in Egypt. The rally was mainly driven by news of continuing improvement in the manufacturing sector in both the U.S. and China that was reported this past week.

The DOW continues to receive the bulk of the buying, in comparison with the other indexes, inasmuch as investors are fully aware that at these prices there is more security in Blue Chip companies than there is in the general market. That scenario is not likely to change until a strong correction occurs.

On a weekly closing basis, resistance is minor at 12110. Above that level, there is decent resistance at 12767 and strong resistance at 13058. On a daily closing basis, resistance is minor at 12114 and then minor again at 12313. Above that level, there is no resistance until decent resistance is found up between 12694 and 12743. On a weekly closing basis, support is very minor at 11823 and decent between 11098 and 11101. On a daily closing basis, support is minor to decent at 11822, minor at 11731 and minor to decent at 11637. Additional support is minor at 11555/11565, and again at 11478.

The DOW only shows resistance at 12,000 from previous low closes as well as psychological. As such, the resistance is not considered strong or dependable. Nonetheless, the prior weekly low close in play was seen Mach07 at 12110. Having closed on Friday at 12092, if the low close resistance is to hold up, next Friday the index should close lower.

The DOW did close on the highs of the week on Friday and follow through to the upside, at least at the beginning of the week, is expected. This is especially true since there is no fundamental news of consequence expected this week and the uptrend is likely to prevail at first. Nonetheless, if there is follow through to the upside there is a technical level that is likely to be reached this coming week that could have some meaning. The index is reaching an important Fibonacci number at 12226, which is a 75% correction to the drop from 14198 down to 6496.

Fibonacci is a numerical formula that has been used for over 75 years, has a strong record of success, and is followed religiously by many technical traders. The 75% retracement level is one of the more powerful numbers in its repertoire and 12226 represents that 75% retracement, both intra-week, daily close, and on a weekly closing basis. Fibonacci numbers don't come into play often but when they do, technical traders do pay attention. With the index so heavily overbought and likely over done as well, it is possible that the Fibonacci number will be used by the traders to take profits on the long positions, especially since the index is way overdue for a correction to this uncanny bull-run. Traders seem to be looking for some catalyst or good reason to take profits and this seems to be the only one available at this time and at these prices.

As far as possible downside is concerned, the DOW has been very successful (with one small exception in November) in holding above the 20-day MA, which is currently at 11890. In addition, on the weekly chart, minor support can also be found at 11939. If those levels are broken, decent support on the weekly chart will be found between 11634 and 11731, which 11634 also represents the 50-day MA, which has not been broken since September. As of this writing, more downside than these levels mentioned is not expected to be seen due to the resiliency of the bull mentality presently found in the market.

It is evident by the numbers being released recently that the mentality of the market is overwhelmingly bullish at this time. This is clearly evident by the ISM Index number that came out this past week, not only surpassing the expectations but matching the highest level seen in 16 years. Nonetheless, it must be mentioned that the ISM Index is merely a survey of purchasing managers and their opinions. It is a diffusion index, which means that it reflects the number of people "saying" conditions are better compared to the number saying conditions are worse. It does not weigh for size of the firm or for the degree of better or worse. The index does not use hard manufacturing data for its number but simply the "opinion" of the purchasing managers. As such, it can change dramatically from one month to the next. With it coming out at 16 year highs, it can be said that bullishness of the economy could be at its "peak".

The close on Friday at 12092 does fulfill the requirements of testing the 12,000 level on the weekly closing chart as well as testing the previous low close from Mch07 at 12110. Last week's close at 11803 did not fulfill that requirement even though the index intra-week did get up to 12,000. As such, this coming week is important, at least on a weekly closing basis, as a close below 12092 would mean the Mch07 low close at 12110 was tested successfully and a correction likely to occur.

If the index does not close in the red next Friday, then the only thing left would be the Fibonacci number at 12226. That level is certainly important intra-week, but also on a daily and weekly closing basis as the number is the same in all three, so there is a possibility the index could close there next Friday and "then" head lower. By the same token, if the index surpasses that level both intra-week and on a daily and/or weekly closing basis, then further upside has to be expected with the 13,000 level as the objective to be reached within the next few weeks.

There are no economic or earnings reports of importance this week which likely means that technical trading will rule. The parameters are now clearly defined and the traders are likely to decide what they think is going to happen for the next couple of months until the next set of earning reports come out. As such, the next 2 weeks are highly important.

NASDAQ Friday closing price - 2769

The NASDAQ was able to erase all the weakness seen the previous week, after the disappointing reaction to the earnings reports of AAPL, GOOG, and AMZN, when it made a new 40-month intra-week and weekly closing high on Friday. The failure to follow through signal was also negated suggesting the index will use the negative action seen the previous week like a rubber band and generate like action to the upside this coming week.

The original objective of the NASDAQ to reach the 2800 level is once again valid and likely to be seen this coming week. The DOW is expected to reach 12226 (another 134 points higher) and that could easily put an additional 30-40 points on the NASDAQ, putting the index up at 2800-2810 where strong resistance is found.

On a weekly closing basis, resistance is major between 2805 and 2810. On a daily closing basis, resistance is strong at 2811 and major at 2859. On a weekly closing basis, support is minor to decent at 2686, and minor at 2595 and decent between 2505 and 2518. On a daily closing basis, support is decent between 2686 and 2689, 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 was able to negate last week's break of the 20-day MA, when it unexpectedly did not reach the 50-day MA and rallied to make new 40-month highs. The rally caught the traders with their pants down as none of the 4 main stocks in the index (AAPL, GOOG, NFLX, and AMZN) rallied enough to generate such strength. Such action suggests that the cause of the rally in the index was centered in other stocks.

The NASDAQ is now within 90 points of the 10-year high seen in Oct07 at 2861 and erasing "all" of the recessionary negatives that have been seen over the past 3.5 years. This has been accomplished mainly because technology has effectively reduced the need for human labor and increased productivity, therefore the index and many of its tech stocks have not been as affected by the high Unemployment still being seen.

It is difficult to quantify how much more this fundamental situation will continue to add to the price of the NASDAQ but it is evident that from a technical perspective the 10-year high will offer strong resistance, especially in such an overbought condition as presently exists. The resistance at 2805/2810, which is only 35-40 points above Friday's close, is on a weekly closing basis, so if a 100% retracement is to happen it would mean the index would close at that price next Friday.

By the same token, the NASDAQ has shown quite a bit of volatility over the past 4 weeks having traded each week within an 80 to 100 point trading range, which is much more than has been seen for the last 6 months. This volatility suggests that the selling has been as strong as the buying and that normally signals a high probability of a top being in the process of being built. In addition, the index itself now shows 4 weeks in a row with rallies each week up somewhere between 2755 and 2769, as well as lows each week somewhere between 2676 and 2682. The action means that multiple highs and lows have been generated and generally speaking both highs and lows are likely to be broken at some point. Having closed on a new 40-month high on Friday, it is likely a spike high will be seen first, likely followed shortly thereafter (3-5 weeks) with the lows also being broken with a spike down.

Based on the chart of the index in 2007 when the high at 2861 was put in place, the probabilities favor a spike up this week and a close around 2805/2810 on Friday, followed by a couple of weeks of choppy action with no new weekly closing highs made and then a drop down to the 2500 level.

In many ways, the chart of the NASDAQ does give the clearest picture of what is likely to happen.

SPX Friday closing price - 1310

The SPX did not follow through on the negative reversal week it had last week and generated a new 28-month high intra-week and weekly close on Friday. Nonetheless, the index was still unable to get above the intra-week resistance from Aug08 at 1313 and clearly continues to lag the other indexes because of the weakness still being seen in the financial industry.

On the other side of the coin, the SPX has maintained the uptrend intact, not yet going below a previous week's low and now showing 10 weeks in a row of higher lows.

On a weekly closing basis, resistance is minor to perhaps decent at 1325. Above that level there is no resistance of consequence until the 1400 level is reached. On a daily closing basis, resistance is minor to decent at 1325 and then nothing until minor resistance is found at 1380 and 1395. Above that level, strong resistance is found at 1425. On a weekly closing basis, support is minor 1276, minor again at 1236 and decent 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 between 1299 and 1304, 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.

The SPX continues to lag the other indexes and there is no fundamental reason at this time to think it won't continue to do so. The 1313 level continues to act as minor to decent intra-week resistance but since all indexes are expected to rally this coming week, that level should be broken as the index is likely to be "dragged" upward. The next resistance up is at 1326 (1325 on a closing basis), but it is a resistance from a decent high seen in May06 when the index was on a major bull rally but paused for a period of 2 months and corrected back down to 1228 before resuming the uptrend that ultimately took the index up to the 1576 level. Nonetheless, based on the innate weakness this index is showing, in comparison to the others, it is likely that resistance will be respected if the other indexes don't go above their own resistances mentioned above.

To the downside, the SPX having been successful this past week is staying above the 1270 level, will now show minor to decent support at 1270 from a low seen in Jan08. The support there is not very strong and a drop down to 1253 would then likely ensue if broken. Nonetheless, the support at 1253 is considered decent. Below that level, there is nothing to stop the index from getting down to the 1200 level.

The SPX therefore shows the possibility of rallying another 16 points above Friday's close. If that happens and the 1325 level does stop any further rallies, a correction of about 5% could be seen with 1253 as the first objective.

The uptrend continues as the bears have been unable to find fundamental reasons to sell the indexes. All reports continue to show an improving economy and the only thing that is being talked about is a technical correction to get rid of the overbought condition. Nonetheless, every single time that begins to happen, more good news seems to filter in bringing the buyers out again.

This coming week, though, there are few reports of consequence and the bulls may not be able to depend on further buying at these high levels and may wait to add positions only on dips. As such, the probabilities are slightly higher this week that if a correction begins that it will gain some substance. By the same token, there isn't a lot of resistance above close by and since the bulls have control of the market at this time, they may not cede any of that control until those levels are reached and the bears try to push back.

The risk to the bulls continues to increase, though, as many stocks as well as the indexes are strongly overbought and may also be overpriced as the economic reports though positive, do not show an economy that is growing at a fast rate. As such, any kind of negative piece of news can turn out to be a catalyst that would stimulate a strong round of profit causing the index to fall hard and fast. Nothing like that is expected to happen this week, but the stage is certainly set for just such an occurrence.