DOW Friday closing price - 12130

The DOW showed the first sign that a top, albeit perhaps a temporary one, has been made, closing strongly in the red this past week for the first time since the third week of November. Much of the weakness was due to concerns regarding the problems in Libya and how they will affect the price of oil. Nonetheless, the seasonal first quarter correction that has occurred in the first quarter of every year for the past 10 years contributed greatly to the sell-off. The problem in Libya was probably just the catalyst that sent the bulls scrambling to take profits.

The bears, though, were unable to cause any kind of a strong bearish statement as the DOW held above the psychological support level at 12,000 suggesting that the sell-off is probably just a correction and not a top to the uptrend that has been in place for the last 8 months. Nonetheless, that question remains unanswered as the problems in the Middle East could easily escalate, putting the entire U.S stock market at risk of a major drop if things get worse.

On a weekly closing basis, resistance is minor to decent at 12391, again at 12743 and decent to strong at 13058. On a daily closing basis, resistance minor at 12273 and decent at 12391. Above that level there is decent resistance between12684 and 12743 and strong at 13058. 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 at 12068 and minor to decent at 11823, minor at 11731 and minor to decent at 11637. Additional support is minor at 11555/11565, and again at 11478.

The DOW did generate a bit of a bounce on Friday but still closed in the lower half of the week's trading range, suggesting that further downside below last week's low at 11983 will be seen this coming week. Nonetheless, the 11983 low is considered a, indicative support as the index has corrected a total of 410 points from the high, which mimics the 386 point correction seen in 2006 when the index was in a major bull-run to the upside and ultimately ended up having the smallest first quarter correction seen in the last 10 years. As such, there is a possibility that the weakness seen this past week could in fact have fulfilled the basis for a first quarter correction and that the index will now renew the uptrend.

Though the probabilities of that kind of a scenario do exist, it is difficult at this time to make a quality assessment on whether that will happen or not. The problems in the Middle East continue to rage and the price of a barrel of oil is high. High oil prices will affect the U.S. GDP number and lower the bullishness that has been prevalent in the DOW during the past 6 months. Since it is impossible at this time to predict whether oil prices will drop or not, until that fundamental picture becomes clear, the possibility of renewing the uptrend in the index will suffer.

By the same token, based on the corrections seen in the past 10 years, if the DOW breaks below last week's low at 11983, the probabilities of the "normal" first quarter correction occurring (in excess of 800 points) will increase, likely thrusting the index down to the lower levels of support found on the chart. There are 3 levels of support under 11981 which are 11731, 11634, and 10827 to 10929. The strongest support is the latter one which also includes the 200-week MA, which is currently at 10970, but the fact the index often shows "general" support 300 points below an even number such as 12,000 is, would suggest that the 11634 to 11731 area would be the most likely objective if 11981 breaks.

If the problems in the Middle East do not calm down this coming week and oil prices do not fall back a bit, the probabilities favor the DOW breaking down further. It should be mentioned that Friday's rally in the DOW was not impressive as the index failed to get up to and above the 20-day MA, which has been a major support on the daily chart since August of last year. The failure to get up to that level on Friday, suggests that the buying seen on Friday was not strong. As such, that level will be considered an important pivot point this coming week. A rally above 12160 will likely cause the index to rally back up to test the recent high at 12393 with a move up to at least 12270 to 12300 where some intra-day resistance is found. By the same token, if Friday's low at 12060 gets broken, the probabilities will increase substantially that the index is heading lower with the 11700 area as the first objective. It should be noted, though, that the 12160 level is not an actual intra-day resistance level but only important on a daily closing basis. As such, "intra-day rallies" above the line would not mean the line has been broken.

One thing of importance that should be mentioned is that the 50-day MA, currently at 11890, has not been broken since September, except slightly (110 points) for 2 days in November. As such, the 50-day MA line has to be considered an important indicator of mid to long term trend in the DOW. If the line is broken by more than 110 points and stays broken for more than a couple of days, the probability of a normal correction occurring, down to the 11700 will increase strongly, and if that level breaks a drop down to the 11000 level would then become the objective.

It is evident that at this time there are many unanswered questions that depend strongly on what happens in the Middle East and to oil prices. The continuation of the rally in the DOW has been based on GDP being above 3% for the next 12 months, but on Friday the second estimate of GDP was lowered from 3.3% to 2.8%. There is a direct correlation to oil prices versus GDP. At $100 dollars a barrel of crude, GDP would likely be no better than 2.8% and at $125 a barrel, GDP would likely be no better than 1.8%, which means that the continuation of the up-trend in the indexes will depend largely on where the price of oil is trading at. With the Middle East in disarray, it is impossible to predict how high the price of oil will go up to, or even how much it will drop if the problems ease.

The one thing I can say today, from a chart point of view, is that Friday's low at 12060 if broken, should bring in renewed selling. To the upside, the 12160 level is only important on a daily closing basis, and not necessarily intra-day. Either way, Monday's action, and especially the close, will provide a decent clue as to what the index will do this week. A break above or below either of those levels is likely to generate follow through in that direction, at least for the week. A close above 12160 would likely bring 12300 into view, while a break below 12060 would bring 11890 into view. At least the chart parameters are close enough as to give the traders an idea of which direction to key on for the week.

NASDAQ Friday closing price - 2781

The NASDAQ negated last week's close at new 10-year highs closing not only in the red but below the previous high weekly close at 2810. In addition, the index totally negated the flag formation on the weekly chart that had an objective of 2970 when the index got down and below the previous top of the flag at 2755. If this failure is confirmed next week with another close below 2810, the probabilities of a major high now being in place will increase strongly.

By the same token, the NASDAQ did put in the strongest rally in the indexes late in the week closing only 27 points from the weeks high (76 points from the low), in direct contrast with the other indexes, and suggesting that if there is any follow through to the upside this coming week that the failure signal given would be negated.

On a weekly closing basis, resistance is minor to decent at 2810 and decent at 2833. Above that no resistance is found until decent resistance between 2864 and 2887. On a daily closing basis, resistance is minor at 2789, again at 2817, and decent at 2833. On a weekly closing basis, support minor at 2686 and then nothing until decent support at 2518. On a daily closing basis, support is decent at 2722, and decent again between 2686 and 2689. Minor support is found 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 failure to follow through on the NASDAQ to the new 10-year weekly closing high seen the previous week at 2833 has to be considered a very important clue to the future of the index market. The NASDAQ has been the bell-weather for the indexes since 2008 and if the failure to follow through signal given this week is confirmed next week with another close below 2810, the probabilities of a major high being in place will increase strongly. Such a signal would suggest that the up-trend for the entire year is over and that the indexes would then work lower the rest of the year.

By the same token, it is likely that the traders knowing this to be the case, keyed their buying on the NASDAQ this past week causing the index to close near the highs of the week in order not to have insurmountable odds this coming week in generating enough buying to negate the failure signal.

It should be noted that the NASDAQ is showing a high probability of a double top having been built, unlike the weekly chart, as the 2007 daily closing high was 2825 and the close seen 5 trading days go was 2833. As such, if this double top is confirmed it will have to be considered a major signal that an end to this rally has been found. To confirm the double top, the index must test the recent high with a rally and a close no higher than 2810 and a break below the recent low at 2705 thereafter.

Decent resistance intra-week will be seen between 2819 and 2825, but on a daily closing basis, the resistance should be strong between 2805 and 2811. Having closed at 2781 on Friday, it suggests the index could be up as much as 25-40 points this coming week before running into strong selling. The index was the strongest on Friday having outperformed both the DOW and the SPX on that day. That could continue on Monday with the index getting up to the 2805 level without the DOW getting much above the 12160 level where the 20-day MA is currently at.

It is evident that the bulls will be keying on the NASDAQ this week as a confirmed failure signal in the index could derail the uptrend that has been so strong and so constant for the last 34 months. By the same token, if the bulls are unable to accomplish any further rallies, and the index goes below last week's low at 2705, drops down to the 2500 will likely occur in a fast manner, thus putting in the last nail in the coffin of the recent up-trend.

On a short-term basis and using the intra-day 60-minute chart, resistance will be minor at 2786, minor to decent at 2798/2300, and decent to strong at 2819. Support is minor but perhaps indicative at 2763 and important at 2845.

SPX Friday closing price - 1319

The SPX, just like the other indexes, also closed in the red for only the second time since November, but was substantially in the red for the first time since that date. Nonetheless, the most important thing that can be said about this index, is that based on last week's daily and weekly high close at 1343, the 75% Fibonacci retracement number was fulfilled and with the red close this week, the probabilities of that bear-market retracement being correct have increased. The 75% retracement number was also matched and "beat" by the DOW the previous week, suggesting that the retracement did not apply. Nonetheless, the SPX is the index most of the traders are following at this time, and for the last couple of years, and therefore the retracement number is likely to be much more real/indicative in this index than in the DOW.

The 75% Fibonacci retracement number states that the index/stock is into a long-term downtrend but that a bear market correction of 75% can occur, the key word being "correction" and not trend. As such, if this number and its meaning is correct, it can be said that the index has found a major top to this rally and that a trend back down to the lows seen 34-months ago, and even lower, will occur over the next few years.

On a weekly closing basis, resistance is minor to decent at 1343 and again minor to decent at 1395 and decent to perhaps strong at 1425. On a daily closing basis, resistance is minor at 1324 and again at 1332, and decent at 1343. 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 to decent at 1306, minor again 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 failed to follow through on last week's 32-month weekly closing high even though no previous resistance of consequence until 1395 was evident. As such, a failure to follow through signal might be in play, though that won't be confirmed until another close in the red next Friday occurs. Even then, the index would really need to close below 1300 for the failure signal to have much strength.

The SPX did bounce up on Friday and unlike the DOW the index was able to close very slightly above the 20-day MA, currently at 1316, suggesting that follow through to the upside is likely to be seen this coming week. Very minor resistance is found at 1324 and again at 1332, but the key word is "minor". By the same token, on the intra-day 60-minute chart, the 20 60-minute MA is currently at 1324, so for that reason alone I would say that level is important to what the index does this coming week.

As far as support is concerned, the low seen this week at 1294, as well as the daily closing low at 1306, are likely to be important for the short term. A break below either of those levels is likely to cause the index to drop down to the 50-day MA, currently at 1290. Further support of some consequence is seen at 1270'/1275, but if broken, drops down to the previous high of consequence at 1227 would likely be seen.

The SPX chart is important right now but mostly because of the Fibonacci 75% retracement number. Nonetheless, the trading below that number (1343 on a daily and weekly closing basis) is meaningless as far as the Fibonacci table is concerned. As such, the number is only good as far as the index not making a new daily and weekly closing high. By the same token, with the SPX being the index most traders follow, if the failure to follow through is confirmed this week with a second weekly close below 1343, the Fibonacci number is likely to take on a special meaning that will be difficult to negate.

The SPX, unlike the DOW, was able to close in the upper half of the week's trading range suggesting that the traders are more likely to try the upside than the downside first. Evidently the high and low for the week (1294 and 1338) will be important as a break of either of those levels will likely spur further movement in that direction.

This coming week promises to be volatile as well as important. The fundamental factors that affected the indexes this week are still in play and likely to continue to have much impact on what the indexes do. It is important to note that the indexes did give mixed signals this week as the NASDAQ and the SPX actually closed in a positive way while the DOW closed in a negative way. This being in sharp contrast to what has been seen in recent weeks as the DOW has been where the conservative money at these high prices has been moving to, and with the fundamental picture in the Middle East being so explosive, it would have been thought that the money would still be going to the DOW if the traders felt the problems would be resolved and the indexes were heading higher. That was not the case. As such, I would have to say that the mixed signals slightly favor the downside.

Having had the first move down of consequence in the last 12 weeks, suggests that the correction is not over but just starting. Nonetheless, so much depends this week on fundamental news, rather than charts, that at this time it is impossible to key on one direction or the other.

In addition to the volatile situation in the Middle East, this is a week with a slew of important economic reports starting with the ever important ISM Index coming out on Tuesday. The Index exceeded expectations last month when it came in substantially higher than expected and at 16-year highs. As such, this report is likely to have an impact this week as higher numbers than last month would suggest the market is better than it has been for the last 16 years. By the same token, should the index come in lower than expected, thoughts that the top of the rally has been found are likely to be rampant. In addition, the Unemployment numbers come out on Friday and those too came in much better than expected last week and therefore better than expected numbers this week will strongly increase the confidence that the economy is getting better, while worse than expected numbers will deflate the market. All in all, it can be said that this coming week is very important as decisions on the future of the market for this year are likely to be made.