DOW Friday closing price - 11504

The DOW had a strong reversal type week having gone below last week's low and closing above last week's high, suggesting that follow through to the upside will be seen this coming week. In addition, the index closed above the most recent high weekly close at 11284, which makes last week's close at 10992 into a successful retest of the low close at 10817 as well as a short-term buy signal, which in turn also confirms that the low weekly close at 10817 seen 4 weeks ago at the 200-week MA as a successful test of that major long-term support line. Simply stated, the technical traders are seeing action that increases the chances that this recent move down was in fact a seasonal correction prior to an end of the year rally and not the beginning of a recession.

Nonetheless, all is not rosy from either a fundamental or a technical basis. Fundamentally there has been no change of economic outlook as all the reports continue to come out worse than expected. The rally in the DOW was based more on news that China and the U.S. will help Europe bail out Greece than on anything else and that is not necessarily a positive, just a solution to the "most negative" outlook. As such, it can be said the rally was more short-covering of positions put on based on the potential default on Greece than on anything positive that may come out of the bailout. In addition, from a technical basis the chart continue to show a clearly defined inverted flag formation that in spite of the 700+ point rally seen this past week continues to trade "within" the flag. On a weekly closing basis, a positive spin can be put on the action seen, but on an intra-week basis, the formation maintains its bearish outlook, at least as far as the high seen for the week on Friday.

On a weekly closing basis, resistance is minor at 11734 and minor to decent at 11893. On a daily closing basis, resistance is decent to perhaps strong at 11613. On a weekly closing basis, support is minor at 10992 and decent at 10817. On a daily closing basis, support is minor at 11139, and then minor to decent at 10992 and at 10817, and then decent at 10719.

The DOW has been in a well-defined but wide ranging trading range for the past 6 weeks with moves of over 700+ points being seen every week in both directions depending on the "mood" or the market on that particular week. Nonetheless, only 2 out of the last 7 weeks have been green closes and no signal has yet been given on the chart that the index will break out of the trading range. As such, the probabilities still favor the bear side until such a time that the economic numbers show that some decent growth is coming back into the economy.

The DOW shows a strong daily close resistance at 11613 that should not be broken "if" the threat of an imminent recession still exists in the minds of the traders. Nonetheless, if that level is broken (on a daily closing basis) it would change the chart outlook from a possible downtrend to a possible sideways trend with traders simply waiting to see if there is any improvement seen in the economy by the end of the year. Such a scenario would likely thrust the index up to the Aug08 highs at 11867 (11734 on a weekly closing basis), which is also where the 100-week MA is currently located, suggesting that the index will trade between the 50-week and 200-week MA's, currently at 11875 and 10700 respectively. The probabilities are extremely high that clarification on this is what the traders will be looking for in this week's action.

As I see it on the charts, you have only 2 possible scenarios this week and both based on the DOW being able to close above 11613 or giving a failure signal with a red close before accomplishing that goal. A daily close above 11613 will probably thrust the index up intra-week to 11867/11875 where strong selling would then come in, not based on recessionary pressures but based on slow economic growth. The rally up to that level would ease the fear of a recession but still leave worries about the fact that economic reports have shown low growth. A further decision based on a possible recession would then be made after the next set of economic reports. A failure to get above 11613 would again fuel the recessionary fears, thrust the index back into these 700+ points weekly trading ranges, and push the index down toward the recent lows likely breaking them and putting the bulls once again on the defensive trying to stop a recession signal from being given.

The first scenario (with 11613 breaking) seems to be the most likely scenario as the news this past week suggests that a Greek Default will be averted with the help of the U.S. and China. In addition, all indexes closed on their highs on Friday with the NASDAQ breaking its level of resistance slightly, suggesting that further upside will be seen this week. It should also be mentioned that the Fed is having a 2-day meeting this week to discuss strategy and possible solutions to the recessionary pressures being seen. As such, until that is decided, it is likely the traders will be buyers expecting the Fed to come up with something positive. After the meeting, though, all bets are off as the old adage about "buying the anticipation and selling the fact" is likely to come true, especially since the Fed has so few tools at its disposal to do anything especially beneficial.

I do believe the volatility will continue. Possible trading range for the week could be something like 11875 to 11140 with the upper end of the trading range being seen first. Keep in mind, though, that all of this continues to pivot on the Euro and the possibility of a Greek default and that is a possible monkey wrench that the traders must face every single day, making trading with any kind of assurance difficult for all.

NASDAQ Friday closing price - 2669

The NASDAQ was the strong index this past week having rallied close to 8% above last week's close whereas the other indexes only rallied about 5%. This was reminiscent of what happened during the first 30 months of the rally from the March08 lows where the index was the absolute leader to the upside an does bring up questions about whether the uptrend in the market has returned or this leadership over the past couple of weeks is mainly due to an overall feeling that a recession signal will not be given and buyers were returning to key on the stocks in the index.

It should also be mentioned that the NASDAQ was the only index that did "not" get down to the 200-week MA on this correction and therefore has continued to show more resiliency than the rest of the market, suggesting that it will remain as the index that the traders will key on when in a positive mood.

On a weekly closing basis, resistance is decent at 2616 and minor at 2680 and at 2755. On a daily closing basis, resistance is decent at 2616, very minor at 2639, minor to decent at 2680 and 2700. On a weekly closing basis, support is minor to decent at 2467 and decent at 2341. On a daily closing basis, support is minor to decent at 2469 and decent at 2341.

The NASDAQ was able to close on Friday slightly above a previous low close of consequence at 2616, important on both the daily and weekly closing chart. With the index having closed on the highs of the day/week on Friday and no economic news due out on Monday, the probabilities are very high that further upside will be seen and that a break of at least the daily closing resistance will occur. A break of that line will change the short-term outlook of the index suggesting that the index is now into a sideways trading range until the next set of economic information comes out.

To the upside, the NASDAQ is likely to find resistance between the 100 and 200 day MA's currently at 2680 and 2705 respectively. Getting above the 200-day MA would suggest a return to the uptrend seen previously and the fundamentals do not suggest that is a good possibility at this time. As such, the index probably has no more than another 3% move to the upside in store. Having moved close to 8% to the upside this past week, it is highly likely that the same kind of strength seen this past week will not be seen this coming week.

On an intra-week basis, and considering that the first move at the beginning of the week will be to the upside, the 2600 level will become a pivot point as well as a support level for the week. If that is the case, the trading range for the NASDAQ for the first 3 days of the week (until the FOMC meeting results come out) will likely be something like 2600 to 2680 or 2600 to 2705. Nonetheless, having had a 189 point trading range this past week, the probabilities of that small trading range mentioned above continuing for the rest of the week is small. The probabilities seem to suggest that the Fed will not come up with anything extremely positive and that some disappointment will be felt after Wednesday's results. If that is the case, then the index is likely to see selling going into the end of the week and a drop down to the minor to decent daily closing support at 2469 would likely be seen.

The scenario outlined above is the most probable scenario. Nonetheless, if the NASDAQ closes in the red on Monday and also breaks below the 2600 level intra-day, the bear market scenario will remain in effect and further downside below last week's low at 2438 could be seen by the end of the week. The action seen in Asia on Sunday night and in Europe early morning, likely based on whatever the situation is deemed to be about Greece over the weekend, could have a big effect on how the traders trade this week. A lower opening below 2600 on Monday would be seen as a technical negative and would likely prevent the highs seen on Friday from being broken. This is not the likely scenario, but it is one that needs to be kept in mind as much of the rally last week might have been due to Triple Witching Option Expiration on Friday and with that being gone it is difficult to evaluate with any great certainty what will happen over the weekend.

SPX Friday closing price - 1217

The SPX, like the DOW, gave a short-term buy signal on the weekly chart closing above the most recent high weekly close at 1176, as well as on the highs of the week, suggesting that further upside will be seen this coming week. Nonetheless, the index was unable to close above an important weekly close at 1217 or get above intra-week the resistance found at 1230, thus leaving questions unanswered as to what to expect this coming week.

The SPX continues to be a key to what happens in the market as much of the recent problems have revolved around financial issues having to do with a possible Greek default as well as a Euro dissolution. The worry about the Greek defaulting on their debt was ameliorated this past week with news that China and the U.S. would help to solve the problem. Nonetheless, no deal was actually struck and no details were given, leaving the door open for some unpleasant surprise occurring over the weekend.

On a weekly closing basis, resistance is decent to perhaps strong at 1217. Above that level, resistance is decent at 1268. On a daily closing basis, resistance is decent to perhaps strong 1218 and 1225. Above that level, resistance is minor to decent at 1256 and again at 1267. On a weekly closing basis, support is minor to decent at 1154 and decent at 1123. On a daily closing basis, support is minor to decent at 1154 and decent between 1119 and 1121.

The SPX, much like the DOW is showing a bearish inverted flag formation on the weekly chart that is still in effect. The recent high of the flag was 1229 but that doesn't mean it can't be broken and still be considered a bearish flag formation. The 1229/1230 level has to be considered decent intra-week resistance but a rally up to the bottom of the support level from which the index broke down from at 1258 can still be seen while maintaining the inverted flag formation viable. The other indexes have already visited the previous lows from which they broke down from with the DOW having done it a few weeks ago and the NASDAQ having done it on Friday. As such, it would not be surprising to see the SPX do the same, even though the probabilities are lower in this index of that happening due to the negative fundamental picture that still exists in the financial community world-wide.

At this time, from a chart perspective, the weekly close at 1217 is the most important aspect to the chart in the case of the SPX but with that being 5 trading days away the traders are likely to pivot at the beginning of the week on an recent high at 1230 seen 3 weeks ago as well as on a major high seen in April of last year at 1217. As such the 1217/1230 area represents an intra-week level of resistance based on previous highs that are also strengthened by the fact that the 50-day MA (now at 1227) is currently at that price range as well. As such, the traders will be closely watching whether the index can get above this area of resistance as it would mean the market has a bit more strength than previously shown.

To the downside, the SPX shows no support until the 1173 level is reached, which means that any failure to break the resistance levels above would likely cause the index to drop over 40 points from Friday's close. intra-week resistance level at 1230 which is also where the 50-day MA is currently located. If that level gets broken, then the traders will key on the previous low at 1258 from where the index broke down from at 1258. Nonetheless, with the SPX being the representative of the negative aspect in the market right now, what resistance levels the index breaks, or does not, will be indicative to the rest of the market of how real this rally seen this past week was.

The probabilities do favor further upside, at least up to the 1227/1230 level, being seen this coming week. Nonetheless, if that is all that is seen this week it will be considered a negative inasmuch as that is only 1% higher than Friday's close. Such a small rally after such a strong showing of the indexes likely represents that the help that the U.S. and China will be giving to Europe is nothing more than a temporary band-aid and that it does not represent a long-term solution.

This coming week there are 2 things the traders will be looking at with the first being what steps Europe takes to solve the default problems in Greece and the second being what possible new game plan comes out from the Fed after their 2-day FOMC meeting on Tuesday/Wednesday. Based on those results the traders will get a better idea of what to expect regarding the recessionary fears that are still in the minds of traders. Nonetheless, the choices available based on the economic facts as they are known right now are: 1) economy continuing to see slow growth and likely not recovering from it until deep into 2012 or 2) world-wide recession and a strong drop in value of everything.

The probabilities of the market returning to an uptrend are very low at this time but this is an important week in which a decision will likely be made on whether the indexes are likely to trade in a sideways manner for the next couple of months, or at least until the next set of economic and earnings reports come out in October, or whether the solutions to be problems are not good enough to stop a recession from occurring. If the latter is the choice, strong selling will likely be seen by the end of the week. If the former is the choice, the indexes are likely to get into a technical trading range with the 50 week MA on the upside and the 200 week MA on the downside as the bookends of the story.

Probabilities favor the indexes moving higher at the beginning of the week as there are no negatives likely to come out over the weekend stopping the upside momentum that was generated last week. Nonetheless, with the top of the possible sideways trading range being relatively close by, in comparison with the bottom of the sideways trading range, it is likely that even under the most favorable conditions that further upside like last week will not be seen this coming week. Moves up of as much as 3% from Friday's close could be seen, but anything further than that would likely require strong positive fundamental economic news, which is not likely to happen.