DOW Friday closing price - 10913

The DOW managed to generate a green weekly close on Friday but looked bad doing it. The index started the week on a strong rally after the European nations got together at a meeting last Sunday and agreed to come up with a decision on what to do with Greece and the Euro within a period of 6 weeks. The positive news caused a double bottom on the chart at 10597/10603 to be built and from there the bulls rallied the market gaining a measure of momentum to the upside that carried over into Tuesday. Nonetheless, the index failed to break any resistance levels along the way, or even reach the 50-day MA, currently at 11390, and disappointment was felt causing the index to drop the rest of the week to close 77% from the highs of the week and on the lows of Friday, suggesting that further downside will be seen this coming week.

The DOW now shows 3 successful retests on the daily closing chart of the 8-week high daily close at 11613, which in turn was a successful retest of the prior major daily low close for the year at 11613, suggesting that there is nothing else to do, technically speaking, to the upside. The bulls have done everything possible during the last 2 months to reverse all the negative technical factors that have occurred but they have failed on every attempt and now the index is ready to begin to fulfill the downside objectives that the chart formations suggest will be seen. Only if a "fundamental" change occurs at this time will the bulls have any hope of any further rallies to the upside. The probabilities of that occurring are now very low.

On a weekly closing basis, resistance is minor at 11284 and again at 11444. Above that level, resistance is decent at 11509. On a daily closing basis, resistance is minor between 10992 and 11039, minor again at 11153 and minor to perhaps decent at 11190. Above that level there is decent resistance between 11444 and 11509 and decent to strong resistance at 11613. On a weekly closing basis, support is minor at 10771. Below that, there is minor to perhaps decent support at 10150 and again at 10012. Below that level support is decent at 9668. On a daily closing basis, support is minor at 10817 and minor to perhaps decent between 10719 and 10733. No support below that seen during the last 12 months.

Over the past 6 weeks the DOW has bounced up successfully 2 times from the 200-week MA, currently at 10660, including this week's close above the previous week's close at 10771. Nonetheless, neither bounce has generated enough of a rally to break the downtrend in place and this last bounce has to be considered very weak as the index even failed to close up at the 100-week MA, currently at 11170, much less at the minor weekly close resistance at 11284. What makes that so particularly negative is that the index got up as high as 11369 intraweek and yet the bulls were unable to generate, on a weekly closing basis, what would have been considered a "normal" bounce in a bear trend. As such, the bulls have to be strongly disappointed and cannot hope to generate enough new buying this week to get another rally to the upside if they do not get some fundamental help. Such a situation is ripe for the bears to push the indexes lower, break the recent supports and get a domino-like avalanche to the downside.

In addition, the weak bounce off of the 200-week MA suggests that the traders will attempt to close the index next Friday below the line, if for no other reason than to test the ability of the bulls to prevent that from happening and if it happens, to negate the break the subsequent week. As such, the 200-week MA currently at 10660 is likely to become not only an objective for this week but an important pivot point as well. If that occurs, the probabilities of the DOW getting back down to the double bottom at 10603/10597 will be high, taking away much of the technical strength that a double bottom generally gives. A break below that level will open up a can of worms inasmuch as there is no chart support below that level until the 10,000 to 10150 level is reached. A break below 10597 could generate another 500 point drop without much of a problem. With an inverted flag formation as well as a H&S-type formation also in place, the bulls will have a very difficult time preventing any of this from occurring, and this is especially true since it was evident that the end of the month window dressing was not able to generate any buying of consequence on Friday.

There is no support close-by in the intra-week weekly chart of the DOW other than the 11603/11597 level. Nonetheless, on the intra-week daily chart minor support is found at 11824 and 11801 before those lower levels are reached. A break below 11597 would mean a new 12-month low and all the negatives that usually brings.

As far as resistance is concerned, the DOW does not show much previous high daily close resistance until the 11153/11190 level is reached (11369 on the intra-week chart). Nonetheless, there are 4 previous daily "low" closes between 11092 and 11110 that are likely to offer decent resistance because of the weakness recently seen. As such, the possible trading range for this coming week could be something like 11110 to 10660, with the high possibility that if the range is broken it would be to the downside rather than to the upside.

It should be mentioned that there is a very important monthly economic report due out at 10:00am on Monday in the form of the ISM Index. The index is supposed to come out at 50 and this is the pivot point between a recession and growth. A number below 50 will be a strong signal that a recession is in place, while a number above 50 will keep that question unanswered. Earnings reports for the next quarter start in one Week on Monday October 10th with AA reporting. If the ISM index report comes out as expected, the only other thing that could stop the indexes from breaking down this week it is the beginning of the earnings quarter and the uncertainty that brings. Nonetheless, with so many economic negatives out there it is likely the bears will take on the attitude of "show me" before covering any shorts, which means that it is possible the DOW will not break down totally this week but that it will close weakly next Friday around the 200-week MA, and let the bulls "prove" they can pull the "rabbit out of the hat" the week after.

NASDAQ Friday closing price - 2415

The NASDAQ gave a small sell signal on the weekly chart on Friday closing below the most recent low weekly close at 2467. In the process, the index also closed below the 100-week MA while generating the lowest weekly close in 7 weeks, suggesting that the low close for the year at 2341, seen 7 weeks ago, is now a magnet target. This break is particularly indicative inasmuch as the index has been the leader to the upside but this past week that leadership collapsed as the index dropped 8% in value this past week, compared to 5%-7% in the other indexes. Such a collapse in leadership is likely a strong indication that the traders have given up on rallying the indexes and are now either liquidating their long positions or even going short.

With the rally seen at the beginning of the week, the NASDAQ has now fulfilled its chart formation as the early week rally turned out to be a successful retest of the recent highs at 2643, something that was needed before the index, technically speaking, could head lower. With the chart fulfilled, the NASDAQ now shows a fully built inverted flag formation with the bottom of the flag at 2331 also being a double bottom on the daily chart. A break of that level would give an objective of 2131.

On a weekly closing basis, resistance is minor at 2479, decent at 2530 and decent to strong at 2622. On a daily closing basis, resistance is minor to decent between 2455 and 2467, decent at 2546 and at 2579 and decent to strong at 2622. On a weekly closing basis, support is decent at 2341 and then nothing until minor to decent support is found at the 200-week MA, currently at 2240. Below that level, support is not found until minor to decent support at 2141 and decent support at 2093. On a daily closing basis, support is minor at 2357 and decent at 2341. Below that level there is no support found during the last year.

This coming week, the NASDAQ has a high probability of getting down to the lows seen in early August between 2331 to 2357. In fact, since there is no support of any consequence between Friday's close and those levels, and the index has a habit of rapidly reaching levels of support/resistance when no chart points of consequence are found, it could happen as early as Monday. Nonetheless, a drop down to that level is likely to generate a bounce if for no other reason than a break of that support would likely cause strong technical selling to occur and a further drop of 100 to as much as 200 points to be seen With the earnings report quarter starting the week after, it is doubtful that the traders will commit themselves to generating such a break. Nonetheless, a drop back down to 2331 would create a triple bottom that always has a high probability of being broken. In addition, the fundamental reasons for selling continue to add up and it is possible that if the traders are able to break that support that panic selling would occur. This is especially true since a drop down to 2309 would give a recession signal.

It is evident by the action seen this past week that the NASDAQ is being targeted for selling inasmuch as it is where most of the speculative money has flowed to during the past 3 years, and certainly during the last 6 weeks. As such, if the market is heading lower as fundamentals and chart action suggest, it makes sense that the most selling would be concentrated in this index. Just like with the DOW, the NASDAQ is showing 4 daily low closes of minor consequence between 2455 and 2473 that were working as support but are now likely to act as resistance. With no intra-week resistance found until 2555, those 4 low daily closes are likely to be used by the traders to determine the severity of the weakness. As such, if there is any rally in the index this coming week, the probabilities favor the index being unable to close above that area. Unfortunately, these are closes and not intra-day/intra-week resistances, making it difficult during the day to determine the strength, or lack thereof, of the resistance there.

Nonetheless, talking about resistance may be moot as the NASDAQ generated a red weekly close (unlike the DOW) and on the low of the week and the first course of action for the week is likely to be down. Thinking about resistances is not likely to prop up into trader's minds until the recent lows are reached and a bounce occurs, if it occurs at all.

Based on the chart, the fact the NASDAQ seems to be losing its leadership, and that the rest of the indexes are either at or below the 200-week MA, there is a good probability that the index will get down this week to the 200-week MA, currently at 2240, as well. As such, the 2331 level must be considered a pivot point of importance this week. With the index closing at 2415 on Friday, the 2331 level is the half-way mark between those two areas, which means there is a good possibility the index will see very little, if any, green this week.

SPX Friday closing price - 1131

The SPX confirmed the break of the 200-week MA, currently at 1144, with a second close in a row below the line. The confirmation increases the probability of further downside this coming week as well as possible break of the year's low at 1101 seen just 7 weeks ago. The index was able to close above the low weekly close for the year at 1123 but having closed on the lows of the week a break of that level might easily be seen next Friday, giving a second strong sell signal in the process.

The SPX will give a recession signal if a drop down to 1096 is seen and having had a 64 point trading range this past week, having tested successfully the 100-week MA, currently at 1195, and having closed on the lows of the week suggests that the index will indeed give a recession signal this coming week unless a positive fundamental piece of news comes out. A break of the recent low at 1101 will also be a break of the bottom of a well formed and well defined inverted flag formation that has a 985 objective. Certainly if the 1101 level is broken, the 1000 level will become a magnet for the traders.

On a weekly closing basis, resistance is minor at 1176 and decent to perhaps strong at 12171218. On a daily closing basis, resistance is very minor at 1160, minor at 1177, minor to decent at 1204 and decent to perhaps strong at 1216/1218. On a weekly closing basis, support is decent at 1123 and then nothing until decent support is found between 1064 and 1066. On a daily closing basis, support is minor at 1129 and decent between 1119 and 1121.

The SPX failed to accomplish anything positive on the charts with the rally seen at the beginning of the week but on a negative note did generate a second successful retest of the recent high at 1230 which in turns strengthens the bearish inverted flag formation that has been built over the past 8 weeks. In addition, the repeated drops down to the 1120 area have increased the probabilities of a break occurring soon, with a distinct probability of it occurring this coming week. With the chart formation now totally fulfilled there are no technical reasons to rally the index any more, suggesting that a lack of positive news this coming week will bring a break of the support levels underneath. A break of support levels will likely cause a drop down to near the 1040 level as there are no previous support levels built between 1100 and 1040. Nonetheless, the 1040 level should generate at least a bounce back up to 1100 should that level be seen.

Having now closed 2 weeks in a row below the 200-week MA, and this happening on a week where the DOW did generate a small bounce up off of its 200-week MA, suggests the SPX is extremely weak and likely the index to follow for clues as to what will happen this coming week. Fundamentally, the problems in Europe's financial condition based on the possible default by Greece and how that will affect the European banks is what is worrying the traders the most. With no solution likely to be found this week, the fear will continue to grow as time grows short before something needs to be decided. The probabilities of a Greek default are at 97% and therefore the traders are likely to keep on selling rather than waiting for the possibility of a positive resolution to the problem.

Chart-wise, the traders will be closely monitoring the 1101 to 1122 level as there is quite a bit of previous support in that range. That means that if the bulls have any hope of turning the index around this area must hold. Any break below 1101 will likely set in motion a domino-like event that the traders will not likely be able to stop. With the index having closed on the lows of the week, Monday is probably going to be very important as those levels are likely to be tested early, possibly as soon as the opening of the market. The always important ISM Index report comes out on Monday at 10:00am and that is likely to be the catalyst for the week.

To the upside, there is no level of resistance close-by on the daily chart that is very important, but on the 60-minute chart, the 1150 level seems to be a pivot point. A rally above 1150 is likely to take away some of the selling pressure. Probabilities do favor the downside and for a strong week down. Nonetheless, Monday's ISM report could be what defines the week.

The probability of a strong drop in the indexes being seen this week is high as the backing and filling in the charts have been fulfilled and the formations in place suggest a strong down move is coming. Nonetheless, there are 2 reports this week that are very important with the ISM Index on Monday and the Jobs report on Friday. The ISM index is likely to be the most important because it is due to come out at 50, which is a pivot point between recession and growth. A number lower than 50 will mean we are in a recession and the traders will likely trigger the recession chart points mentioned above, much like what the Transportation Index already triggered 2 weeks ago. A number above 50 may not help the bulls all that much as the number would have to be substantially higher above 50 for those fears to be assuaged.

The problems in Europe have not been resolved and in reading the newspaper today (Sunday) it seems the Jobs bill that was proposed by Obama is running into severe obstacles that are not likely to be overcome, especially with the strong opposition from the Republicans that is given to "anything" that Obama offers. As such, the possibility of Unemployment heading lower is being derailed once again. With the problems continuing to mount and no solutions apparent anywhere, it seems highly difficult that the market will be able to stay at these levels.

In addition, with the inability of the indexes to rally above their previous important lows for the year, in place prior to the strong break seen 8 weeks ago, the bearish chart formations that have been built during this period of time are now ripe for breaking and the psychological 10,000 level in the DOW as well as the 1000 level in the SPX will begin to be strong magnets calling the indexes down to those levels. The bulls are in trouble and is seems that only a "Hail Mary" pass to the end zone could turn the game around. A negative week for the indexes is expected.