DOW Friday closing price - 11808

The DOW made a new 3-month weekly closing high on Friday extending the 3 week rally that started at 10404 on October 4th. The index has now rallied 14% from the lows mostly on anticipation that the European Summit this weekend will come up with a solution to the Greek default problem as well as answers on how to protect the Euro from losing value and/or breaking apart. Worries about a recession have receded and strong short covering has occurred. Nonetheless, it will all be for naught if the summit fails to come up with a solution that will solve the problem.

The DOW did confirm last week's break above an important weekly close level at 11613 but has not yet given a failure to follow through signal on the weekly closing chart, needing to close above 11858 in a convincing manner. It is evident that with the close on Friday at 11808, and the Summit being on Sunday, that the index faces a pivotal week this coming week as a red close would confirm that the index is at best in a sideways trend or at worst at the beginning of the next leg of a downtrend, while a green close above 11858 would suggest the last 3 months have been simply a strong correction within a long-term uptrend and that the index is on the next leg up.

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 to decent at 11397, minor at 10992 and strong between 10655 and 10719.

The DOW could be in a no-win situation this coming week as it has been anticipated that the Summit meeting will bring about some kind of a solution for the European crisis. Nonetheless, the adage of "buy the anticipation and sell the news" could apply as a solution to the European crisis is more in the way of preventing a catastrophe than a way to stimulate growth and after a 1400 point move it can be said that most of the positive solution, if not all, has already been built into the price. A positive solution, though, would likely bring in additional buying as the traders would likely use that as a reason to generate further short covering in the market while liquidating their own longs in the process.

A positive solution on Sunday would likely cause a rally on Monday to occur with the always important 200-day MA, currently at 11970, as the objective. There is one possible technical "monkey wrench" that needs to be watched closely as the DOW broke out of a bullish flag formation on Friday when the index got above the top of the flag at 11652 and closed on its highs. The flag formation has an objective of 12568 and if the solution in Europe is a positive one and the bulls push hard and get the indexes above the 12000 demilitarized zone the bears may be powerless to stop them. By the same token, it should be mentioned that the index had a similar inverted flag formation to the downside 2 weeks ago that was broken and was giving an objective 9560 and the bulls were able to negate that and rally, which technically speaking was one of the main reasons (a failure to follow through) for the strength of the rally. The bulls face the same situation here in reverse and it could cause a drop to occur as strong as the rally was.

Technically speaking, the key to the flag formation is the top of the flag at 11652. If the bears can get the index to trade below 11652 on Monday, or any day this coming week, the flag would be negated and strong selling would likely occur. The other key, of course, is the 200-day MA at 11970, which is always considered an important line and not likely to get fundamentally broken unless there are good reasons to think that the recent downtrend was in fact just a major correction and that the uptrend of the last 3 years is resuming. The probabilities of a return to the uptrend occurring have to be considered small, at least fundamentally speaking.

It is evident that this coming week could be dramatic inasmuch as "something" is likely to come out of the Summit in Europe and depending on the fundamental interpretation of the traders on how good or bad that "something" is will likely bring about a strong reaction overall. The failure to follow through on the inverted flag formation caused the DOW to rally over 1200 points in just 6 days. A failure to follow to the upside this week could bring about the same kind of a reaction to the downside. By the same token, if the bullish flag is confirmed with a move above the demilitarized zone, a rally up to the 12568 level could occur in as little as 6-8 days as well. As such, the index could be facing a 700-1200 point move this coming week, in one direction or the other. The probabilities favor the downside as technically speaking the DOW is still in a weekly downtrend and the burden of proof lies on the shoulders of the bulls.

The DOW shows no resistance of consequence above the 200-day MA until decent resistance is found at 12331. Above that level, the next level of decent resistance is found at 12450. To the downside, the index shows no support of consequence until decent support is found at 11296. Below that, there is no support of consequence until decent support is again found at 11604.

This coming week is likely to be a strong week especially since the large bulk of earnings reports, including the biggie this week in AMZN on Tuesday after the market close, will have come out. In addition, on Thursday the GDP-Adv report will come out as well, giving the traders plenty of fundamental information they can match up with the chart trading. Expect to see some dramatic moves this week, likely more toward the end of the week, but dramatic nonetheless.

NASDAQ Friday closing price - 2637

As incredible as it may sound, especially after watching the DOW make a new 3-month high, the NASDAQ generated a red close on Friday. The index did not fulfill its leadership role this past week and that certainly gives more weight to the idea that a positive solution to the summit meeting in Europe may already be factored into the market. Another reason for the lack of leadership this week is that the #1 stock in the index (AAPL) failed to beat estimates for the first time in years coming in worse than expected. This is a company that generally beats estimates by 25% or more and to come in below expectations has to be considered a bucket of cold water on the market, at least in the tech sector that has been "ruling the roost" for the past couple of years.

The lack of leadership in the NASDAQ this past week and the fact the index had an inside week (lower highs and higher lows than last week) as well as the red close which made the previous week's close at 2667 into a successful retest of the 50-week MA, currently at that price, suggests that fundamental help is needed to generate further upside. Fundamental help could come in the way of a successful European summit as well as a better than expected earnings report from AMZN this coming week. Nonetheless, unlike the DOW that is only showing a previous low weekly close at 11858 as resistance, the NASDAQ is now showing a previous high weekly close (last week's close) as resistance, giving the bears more strength than they presently have in the DOW.

On a weekly closing basis, resistance is minor at 2667, decent at 2706/2707, decent to strong at 2810, and major at 2873. On a daily closing basis, resistance is minor at 2657 and at 2667 and 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 2614/2616, minor at 2598, and then nothing until minor support is found at 2503 and minor to decent support between 2455 and 2464.

The NASDAQ is also showing a bullish flag formation that if broken (a rally above 2667) would actually project to a new 10-year high at 2926. Fundamentally speaking that seems to be unattainable and therefore the flag formation has to be considered suspect at best. Nonetheless, the index did gap up on Friday between 2606 and 2611 and if put together with the gap seen 2 weeks above between 2512 and 2519 it makes the possibility of a breakaway/runaway gap formation another viable bullish factor. A closure of the gap down at 2606 would likely be seen as a potential start to a domino effect to the downside, while a rally above 2667 would likely be interpreted as a bullish signal. Once again, like with the DOW, the index is facing several chart formations that could generate a strong move in either direction depending on the news and the interpretation of it by the traders.

The NASDAQ did not give any clear clue this past week as to what the direction is likely to be as it spent most of the week straddling the 2616 level that on a weekly closing basis is an important pivot point. The index did close near the highs of the day on Friday suggesting the probabilities lean toward higher prices being seen on Monday. The 2667 level has become an important point right now, but it is likely more important on a weekly closing basis as that is where the 50-week MA is located. The 200-day MA, is currently at 2695 and there is strong resistance on the daily and weekly closing chart at 2706/2707 which suggests that even if a breakout occurs of the bullish flag formation that selling of consequence will be seen above, giving the index the possibility of also giving a failure to follow through signal if the index rallies and then is unable to break above those levels of resistance.

To the downside, closure of the gap at 2606 could be the start of a domino-like effect to the downside. Nonetheless, Thursday's low at 2557 looks as an important support level because if broken there is no "recent" support of consequence until 2335 is reached. As such, the chart of the NASDAQ also suggests that a dramatic move in one direction or the other could be seen.

Probabilities seem to favor the downside, though only slightly.

SPX Friday closing price - 1238

The SPX had trouble deciding what to do at the beginning of the week as earnings reports on several large financial stocks were mixed giving no clear signal as to what the financial sector will be doing at this time. Nonetheless, by the end of the week, and mainly because the Summit meeting in Europe is likely to address the world's financial concerns, the index did generate a mini breakout on Friday closing above the 100-day MA, currently at 1230, and confirming the previous break seen over a week ago of the strong weekly close resistance at 1218 with a second close in a row above that level.

The SPX now has no resistance of consequence above until the weekly close breakdown level is reached up at 1268. That level does have additional resistance in the way of the 50-week MA, currently at that level as well. Rallies up to 1268 are highly likely to be seen, at least from a technical perspective, but would keep the index in a weekly downtrend meaning that if the level is not broken, a drop down to the recent lows below 1100 could occur. The index has to literally close above 1268 next Friday, in a convincing manner, to turn the sellers into buyers and turn the negative world financial outlook back to a positive.

On a weekly closing basis, resistance is minor at 1238, and minor to decent at 1268. On a daily closing basis, resistance is minor at 1256 and again at 1265 and minor again at 1274. Above that level, no resistance is found until 1335. On a weekly closing basis, support is minor to decent at 1189 and minor at 1154. Decent support is found between 1123 and 1131. On a daily closing basis, support is minor at 1209 and minor to decent at 1200. Below that, there is minor to decent support between 1171 and 1177, and then nothing until decent support is found between 1119 and 1121. Strong support is found at 1098.

The SPX could end up being a key this week inasmuch as the important summit meeting in Europe will address the financial situation there, that will affect the rest of the world. It is evident that the index has been strongly affected during the past few months because of the fragility of the world's banks. A positive solution in Europe on Sunday will strengthen the financial position of several nations and banks giving financial companies reason to rally as they are generally considered to be cheap right now.

The SPX closed on Friday in the middle of an important trading range inasmuch as 1268, on a weekly closing basis, is considered important resistance and 1200, on a daily closing basis, is considered important psychological and technical support. Having closed in the middle of that range suggests the traders are unsure of what will happen and have given themselves some room to maneuver after the news on Sunday comes out. By the same token, a break above either of those levels is likely to generate a strong move in either direction with 100 points likely to be seen in whatever direction is chosen.

In looking at the charts of the indexes it is evident that a major move in one direction of the other is about to occur. Certainly the fact that the European problem that has been besetting the market for the last 3 months is about to be resolved in some way or form suggests that such a move is likely to occur. The probabilities of some resolution coming out on Sunday, or Monday before the market opens is high and the probabilities do favor "some" positive resolution. Nonetheless, the reaction to that is a total mystery as much of that resolution may already be factored into the market and even if positive the indexes could sell off. Certainly if the resolution is somewhat considered to be "not enough" the indexes will sell off strongly.

The uncertainty hanging over the market makes any rational chart evaluation at this time ineffectual as it is impossible to factor the fundamental ramifications of whatever decision that is taken. Probabilities slightly favor the downside inasmuch as whatever decision is taken in Europe is more about averting a financial disaster than it is about stimulating growth. Nonetheless, the market is running high on "hope" and giving it another dose of hope could generate a short-term rally of consequence.

Nonetheless, other factors affecting the market, such as earnings reports, will start to fade in importance toward the end of this coming week when the bulk of earnings reports, certainly the most important ones, are over. In addition, the new GDP Adv figures will be coming out on Thursday and that is considered the strongest barometer for growth in the U.S. Whatever the GDP number is, it will likely affect the indexes at least for the next 4 weeks. All in all, everything points to a very strong and possibly dramatic week in the market but the direction is still a mystery and may remain a mystery until the end of the week when all information is out.