DOW Friday closing price - 11103

The DOW gave a failure-to-follow-through-to-the-downside signal on Friday closing above the previous high weekly close as well as breakdown point at 11613. The break on the previous low daily close on Friday, of the level that has been impossible to break for the last 10 weeks, suggests that the 3-month downtrend has been broken and that the threat of a recession has diminished strongly. Nonetheless, the economy is likely to continue anemic and an uptrend is not expected to be seen at this time. The probabilities now favor a sideways trend for the next 3 months with a likely trading range of 1000-1200 points between 10700/10800 and 11800/11900 with an outside possibility of a rally as high as 12,000 or as low as 10600. This is the territory between the 50-week MA to the upside (11865) and the 200-week MA to the downside (10650).

The rally for the last 10 trading days in the DOW has been impressive as the index managed to make new yearly weekly closing lows just 2 weeks ago and now finds itself making a new 9-week weekly closing high. This rally is due mainly to the increased probabilities that the European crisis, with Greece defaulting and the Euro collapsing, will be resolved positively soon. Nonetheless, the problem still remains an open case as no resolution has been agreed to and inked, as such, the index could return to a downtrend at the blink of an eye if any cracks in the resolve of the European banks/nations is found.

On a weekly closing basis, resistance is minor to decent at 11858. On a daily closing basis, resistance is minor to decent at 11897 and a bit stronger at 11980. On a weekly closing basis, support is minor between 11092 and 11100. Below that level, Support is strong between 10771 and 1081. On a daily closing basis, support is decent at 11613, minor at 10992 and strong between 10655 and 10719.

The DOW did negate the break of support on the daily chart that occurred 9 weeks ago but has not negated the break of support on the weekly closing chart that is up at the 11858 level. Simply stated, the index remains in a weekly downtrend for the mid-term (3-9 months) but the short-term (1-3 months) has turned temporarily sideways and that won't likely change until the economic news turns either more negative or more positive. It is evident that the short-term sell pressures due to the European crisis have somewhat abated and is likely to be solved over the next couple of weeks. Nonetheless, that does not stop the overall economic slowdown that is being seen worldwide and that has no easy solution, certainly no solution that can be obtained with heads of nations getting together to come up with a package to solve it.

The DOW closed on the highs of the week on Friday and follow through to the upside is expected to be seen this coming week with the 50-week MA, currently at 11855 as the main objective. Intra-week moves above that level could be seen with the 12,000 demilitarized zone as a possibility. Nonetheless, it is highly unlikely that the index will be able to close above the previous low weekly close of consequence at 11858 as a break of that level would likely mean the index is back into an uptrend. At this time that still seems like a fundamental impossibility.

This week will have quite a lot of important earnings reports, with AAPL being one of them. As such, the DOW will probably be reacting to the earnings reports in a somewhat volatile manner inasmuch as that is normally the case during the first 3 weeks of any earnings quarter. By the same token, the volatility seen during the past 9 weeks will likely diminish quite a bit as the "big" uncertainty that had plagued the market seems to have ebbed due to the probability that Europe will come up with a rescue package for Greece, thus preventing a possible collapse of the Euro. The volatility expected is likely to be a lot less than the 600-1000 point weekly trading ranges that have been seen recently.

To the upside, the DOW shows 3 possible resistance levels with the recent intra-week high seen at 11712 on August 31st likely to be seen on Monday. At that level, the index also shows the 100-day MA, suggesting that some selling will be seen there. If broken, the daily chart then shows some minor resistance from a previous double bottom low between 11862 and 11874. Previous lows are not always a good resistance level but in this case since it also includes the 50-week MA, that level might be difficult to break. Should the index be able to break it, the third level of resistance will be the 200-day MA, currently at 11970. It is highly likely that at least 1 if not all 3 levels will be seen this coming week, with the most likely to stop the index is the 11862/11874 area.

To the downside, support is very limited and therefore any negative news can cause a strong drop in price. The DOW, on both the daily and weekly chart, shows 11550 to be a decent support level. By the same token, that support dates back to March and therefore it is not likely to be a support the traders will rely on heavily. Below 11550 there is no support of consequence whatsoever until the 50-day MA, currently at 11195, is reached. As such, if the 100-day MA as well as the previous August high at 11712 stops the rally, drops down to the 50-day MA would likely be seen.

Due to the strength seen recently, the probabilities suggest that this week the DOW will trade between 11862 and 11550, which would only be a 312 point trading range, down from the big trading ranges recently seen. The bias should be to the upside, especially since the earnings reports are likely to come in generally better than anticipated, though that is somewhat a false sense of security as most of the expected earnings numbers have been strongly lowered during this drop in the market.

NASDAQ Friday closing price - 2667

The NASDAQ once more took over the leadership reins having rallied close to 8% this week, compared to the 5% rally seen in the DOW. The index did negate he break of the previous weekly close at 2616 with a close at 2667 on Friday, suggesting that further upside will be seen this coming week. In addition, the index is presently having a reversal month with lower lows and higher highs than last month. Whether it is a key reversal or simply a reversal to test the highs will not be determined until the end of the month depending on the close (above or below last months high at 2643). It is also important to mention that on the monthly chart the index was not on a downtrend (unlike the other indexes) having rallied to a 10-year high back in May. As such, the same determination that has been already seen in the other indexes is still undecided in this one.

The NASDAQ does show a double top on the monthly closing chart at 2859/2873 and therefore the negation of the break of support on the weekly chart is not likely a signal that the index is in a sideways trend but that a retest of the highs is occurring to see if the index has indeed topped out. As such, for the next week or two the probabilities favor the index continuing to outperform the other indexes, at least until that fact is determined.

On a weekly closing basis, resistance is decent at 2706/2707, decent to strong at 2810, and major at 2873. On a daily closing basis, resistance is minor to decent between 2686 and 2696. Above that level, minor resistance is found at 2765 and then nothing until the strong to major resistance found between 2800 and 2874. On a weekly closing basis, support is decent at 2616, minor at 2595 and minor to decent at 2505. On a daily closing basis, support is decent at 2616 and then nothing until minor support is found at 2503 and minor to decent support between 2455 and 2464.

The NASDAQ continues to be the bell-weather for what the market is likely to do. With the index having been so strong this past year, compared to the other indexes, it is evident that this rally is very important as it will likely determine what condition the overall market is in. This is especially true since most of the earnings reports on many of the most popular stocks, as well as the next round of important economic reports, will have come out during the next 2 weeks and the traders will be able to make an informed decision on which of the choices is likely the correct one. A close below 2643 on October 31st will mean this was just a reversal to test the highs and that downtrend would likely occur in the next couple of months, while a close above 2643 would likely mean the index had a correction and is restarting the uptrend.

As far as shorter term resistance is concerned, the NASDAQ will find decent resistance up between 2724 and 2730 with 2705/2706 being the resistance on a daily closing basis. The index has a high probability of getting up to that level this week but the probabilities are also high that no further upside will be seen, suggesting that no more than 60 points to the upside is what is left to this recent rally.

To the downside, the 2616 level, on a daily and weekly closing basis, is important at this time and will likely be used as a major pivot point by the traders. Below 2616, the NASDAQ shows no support until 2500 and therefore a close below 2616 could cause the index to move down over 100 points in a short period of time. As such, the bulls are committed to taking the index higher this week as now the burden of proof is on their shoulders.

The expected trading range for this coming week, based on a daily and weekly closing basis, is 2616 to 2705. A close above or below either of those 2 levels, especially next Friday, will likely be indicative. Probabilities, though, don't favor that decision being made this coming week as a close between those 2 levels being likely.

SPX Friday closing price - 1155

The SPX continues to lag behind all the other indexes and remains the anchor to the market inasmuch as financial stocks remain under strong selling pressure. Nonetheless, the index did make a new 9-week weekly closing high and further upside is likely to be seen this week with the previous weekly breakdown point at 1265 being the upside objective, at least on an intra-week basis. Like with the DOW, the SPX remains in a weekly downtrend that will not get negated unless the index closes above 1265 on a Friday.

The SPX does show quite a bit of weekly close resistance between 1217 and 1239 with a total 4 previous closes in that area (3 as resistance and 1 as support), suggesting that unless most of major financial companies reporting this week come out better than expected that the index will not be testing the 1265 level next Friday, at least not on a closing basis. Simply stated, if the problems remain in the financial industry the index is not likely to close above 1239 next Friday and could generate a close between 1217 and 1225, making the week relatively uneventful.

On a weekly closing basis, resistance is decent at 1225, minor at 1238, and minor to decent at 1268. On a daily closing basis, resistance minor to decent at 1225, minor at 1256 and minor again at 1265. On a weekly closing basis, support is minor at 1189 and again at 1154. Decent support is found between 1123 and 1131. On a daily closing basis, support is minor at 1204, minor to decent between 1171 and 1177, and and then nothing until decent support is found between 1119 and 1121. Strong support is found at 1098.

The SPX will play an important role this week, mainly because of all the important financial earnings reports due out. JPM already came out last week and it was disappointing and this week the bulk of the banks report. With the banking industry continuing to be the fundamental anchor to the market, these reports are likely to play an important part in the decision the traders must make.

Just like the DOW is likely to see the 11858 level this week, the SPX has the 1265/1268 level to shoot for inasmuch as it is where the previous low weekly close is located as well as the 50-week MA. In addition, the 200-day MA is currently at 1277, suggesting that unless something fundamentally very positive occurs that it's unlikely that the index will get above that level. By the same token, the index also has very decent resistance as well, on a weekly closing basis, between 1217 and 1239 with 1225 likely being the most important of the 4 in that area. That being said, if the indexes do go higher this week, as expected, but the SPX closes at or below 1225 this coming Friday, disappointment will be felt and it could be a signal that the indexes will fail the following week.

To the downside, the SPX has no support of consequence until the 1173 level is reached. At that level, there are a couple of previous intra-week lows as well as the 50-day MA. The support is considered minor to decent at best. A break of that support would signal strong weakness as well as a failure to this rally. It is unlikely that level will be broken this coming week, perhaps not even seen. Nonetheless, should the index fail to follow through this week on the strong close on Friday, there is little to stop the index from dropping all the way down to that price.

The action this past week was short-term indicative suggesting that the immediate short-term downtrend is on a pause and that the traders will await further news. In addition, with the close on the highs of the week, the probabilities favor the indexes moving higher with 2 of the indexes getting up to important previous weekly low closes and one index testing its recent 10-year highs. Nonetheless, the fundamental situation has not yet truly changed to a positive as the only steps seen this past week are meant to "prevent" a collapse rather than stimulate an uptrend. As such, the rally was likely mostly short-covering with very little new buying occurring. This was certainly supported by the fact that the rally occurred on extremely low volume meaning traders were getting out of positions, not instituting new ones.

Earnings reports will dominate this week with GS, MS, WFC, BAC, and AMEX reporting in the financial area and AAPL, IBM, MSFT, YHOO, and GE reporting in the overall area. These reports are likely to dominate the action this week as Europe probably has a week or 2 more to go before some decisions are made there. With the recent momentum being up, the earnings reports need to be negative to stimulate new selling. In addition, estimates on the earnings have come down strongly over the last couple of weeks, likely making the earnings to come out higher than expected. It is somewhat a manipulation of the earnings quarter but then again most traders know that and probably won't react that positively if the reports are just slightly better than expected.

Probabilities favor further upside but likely on a much lesser scale than seen the past 2 weeks, both from the amount of gain and the trading range seen. As such, compared to what has been seen the last 9 weeks I would not be surprised that the indexes trade somewhat boringly this coming week. Generally speaking, I do not expect to see any kind of statement made this week, though the earnings reports might have something to say about that. A higher close next Friday is the most likely scenario.