DOW Friday closing price - 10763

The DOW had a strong reversal type week having gone above last week's high and closing below last week's low. Much of the fall was caused by disappointment felt by the traders at the Fed plan to help the economy recover. The index closed near the lows of the week suggesting that further downside is likely to be seen this coming week. Nonetheless, the index did make new 12-month lows by 6 points on Friday but did not see any follow through to the downside rallying over 180 points from the lows into the close. The action suggests that if there is no negative news from Europe over the weekend, or over the next 2 weeks, the index could see some sideways trading action with a slight downward bias until more news comes out.

The DOW continues to trade within a very well defined inverted flag formation and further downside is the most probable direction. Nonetheless, the bottom of the flag at 10603 has not yet been broken convincingly (index had a low of 10597 this past week) and it is possible that another negative catalyst is needed for that to occur. By the same token, there are several fundamental events happening over the next 2 weeks, such as the start of the new earnings quarter as well as the next round of important economic reports due out at about the same time that could prevent the technical aspects, such as the inverted flag formation, from being fully instituted or fulfilled. Simply stated, it is possible that the bottom of the flag gets broken but that the flag formation does not generate the kind of downward action it normally would.

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. 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 10150 and again at 10012. Below that level support is decent at 9668. On a daily closing basis, support is minor to perhaps decent between 10719 and 10733. No support below that seen during the last 12 months.

The DOW broke the neckline of the Head & Shoulder-type formation, as well as of the inverted flag formation when the index broke below 10824. The break of the formations was not confirmed as the index failed to break convincingly below the bottom of the flagpole at 10603 and the left neckline at the same price. Nonetheless, both formations were not negated either and remain viable for next week. The index did generate a reversal week and did close near the lows of the week, suggesting that follow through to the downside would be seen this coming week. By the same token, using the daily chart, the green close on Friday near the highs of the day does open up the possibility, at least on a short-term basis, that a double bottom has been built with a 10603/10597 lows (10719/10733 on a daily closing basis) and that some upward movement will be seen because of it. The key word is "some" as rallies back up to the Head & Shoulder type formation neckline, presently at 11080 could be seen and still be in a negative formation. In addition, a rally up to the 11258 level could occur if the technical formations are ignored, which they could be due to the fundamental news due out over the next few weeks.

The DOW closed near the highs of the day on Friday and it is likely that Friday's high at 10808 will be broken on Monday (unless some negative news comes out of Europe on Sunday). Rallies up to the 10824 and even up to the intra-day resistance on the 60-minute chart at 10850 are likely to be seen. If no further upside is seen than those levels it is likely the traders will be disappointed and selling will come back in taking the index back down to the lows and likely breaking them convincingly as well. As such the 10824/10850 area should be considered as a small pivot point for the week. A break above that area is likely to generate rallies up to at least the 11,000 demilitarized zone and even perhaps up to the 11080/11110 level.

The probabilities of a sideways trading range between 10600 and 11700 were decent a week ago, but the 935 point drop, the negative reversal (higher high, lower lows, and a close below the previous week's low), as well as the close near the lows of the week seem to suggest that the probability of a sideways trading range being in effect has been reduced and that further downside will be seen. By the same token, the 200-week MA is an important indicator of trend change and therefore until that line gets broken convincingly it cannot be assumed that an overall downtrend is in effect. As such, there is a good possibility that during the next 2 weeks, until the earnings report quarter starts and the next round of important economic reports are seen, that the index will trade in a narrow trading range with a bearish bias.

It is unlikely that the recent highs will be visited or even tested again as the chart to the upside is now totally fulfilled and from a purely technical perspective it is unlikely the index will stage such a rally after the impressive break seen this past week. Though the negative chart formations mentioned above suggest that strong downside will be seen if the 11597/11603 area in the DOW gets broken, the reality is that the fundamentals suggest further downside is likely but not necessarily as strong as the formation objectives call for, at least not until the next negative fundamental piece of news comes out.

The most probable scenario for this week is a bit of a rally on Monday and perhaps Tuesday, with the demilitarized zone between 10970 and 11030 as the upside objective. There is a possibility of the index getting up as high at 11100 and a very small possibility of a rally up to 12258 where there is definite decent previous high resistance that is unlikely to get broken. More than that would likely require some good fundamental news. With the DOW having had a 965 point trading range this past week and thinking that 10300 is also the possible downside objective for this coming week, if the volatility remains as high as it was this past week (unlikely), a rally up to 11258 would then become a higher possibility. Any failure to get above 10850, which is really more of a resistance on the 60-minute chart, would be seen very negatively likely pushing the index down to the 10,000 level this week. I would have to say this is the least probable scenario, but one that does exist.

There are a few important economic reports this week between Tuesday and Thursday, with Consumer Confidence, Durable Goods, 3rd estimate of GDP and Chicago PMI. Nonetheless, none of these reports are more than "B" kind of reports and unlikely to have a strong impact unless way out of line. Most probable trading range for the week is 11030 to 10300, with a close next Friday around the 200-week MA at 10680.

NASDAQ Friday closing price - 2483

The NASDAQ continues to be the strongest of the indexes in spite of the strong sell-off seen this week. The index dropped 5% in value whereas the other indexes dropped 6.5% in value. In addition, the index not only stayed substantially away from the most recent low at 2338 but was even able to close above the 100-week MA, where the other indexes either closed near or below the 200-week MA. Nonetheless, the index did have a negative reversal this week with higher highs and lower lows than last week and a close in the red and in the lower half of the week's trading range suggesting that further downside is likely to be seen this coming week.

The NASDAQ has been a decent indicator of the health, or lack thereof, of the indexes and with the index continuing to be the strongest of the 3 it suggests that the traders are still not totally convinced the market is in a downtrend. On the other side of the coin, though, the red close this week (134 points lower than last week's close) makes last week's close into a successful retest of the important 2616 level that was previously strong support and is now considered strong resistance. Such an event also suggests that it is unlikely that any buying of consequence will be seen anytime soon, or at least not until the fundamentals offer a better future than is now being seen.

On a weekly closing basis, resistance is now minor to perhaps decent at 2530 and decent to strong between 2616 and 2622. On a daily closing basis, resistance is minor to decent between 2548 and 2555, minor to decent again at 2579, and decent to strong between 2616 and 2622. 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 minor at 2455. Below that, there is decent to strong support at 2341.

The NASDAQ broke a somewhat important short-term daily close support between 2468 and 2473 on Thursday (closed at 2455) but was able to negate the break on Friday with a close at 2483. Such action is likely to bring in some short-term buyers next week as it will be seen as a mini failure to follow through signal. Rallies up to the next resistance level on the daily closing chart between 2532 and 2548 might be seen this coming week, simply because of the failure signal given on Friday. In addition, the index gapped down on Thursday between 2537 and 2494 and did not see any follow through on Friday, closing on Friday near the gap area and on the highs of the day. It is therefore highly likely that the gap will be closed this coming week.

Overall, though, the chart formation seen is a negative one as the NASDAQ also shows an inverted flag formation that has not been negated. The bottom of the flagpole is down at 2338 and getting down to that level, at least, keeps on being a high probability. By the same token, 2 of the strongest stocks in the market (AMZN and AAPL) are still on an uptrend and have not yet given any clear indication that they have topped out, meaning that the index is likely to continue being the strongest one. As such, the other 2 indexes would likely have to break their recent lows in order for the NASDAQ to get down to the bottom of the flagpole.

For this coming week, resistance in the NASDAQ is going to be at 2555 and support at 2420. Having closed on Friday at 2483 (near the middle of the probable trading range), the index is likely to pivot around unchanged all week depending the news and what the other indexes do. First direction for the week should be up, likely through Tuesday and perhaps into Wednesday. A break of either of the levels mentioned above will likely generate further movement in that direction.

SPX Friday closing price - 1136

The SPX did not break its recent low, like the DOW did, falling short of the 1101 low seen on August 9th by going down to only 1114 this past week. Nonetheless, the index was the only one that did close below the 200-week MA, currently at 1145 suggesting that weakness continues to be prevalent in the index. This is now the second close below the line in the last 5 weeks and if the index closes below the line again next Friday the break will be confirmed and additional technical selling will likely be seen.

The SPX also is the closest of the indexes to giving a recession signal as it has now seen 2 drops over the past 5 weeks to within 1-2% of that signal being given. Any additional negative out of Europe in the next week or two would likely cause the index to drop below 1096 and generate a possible domino-like event that would take the index to test the major psychological support at 1000. Nonetheless, for the time being the index prevented that from happening this past week, in spite of the strong selling seen, and finished out the week rallying some 22 points from the lows suggesting that a small rally at the beginning of the week could occur.

On a weekly closing basis, resistance is very minor at 1154, minor at 1176 and decent to perhaps strong at 12171218. On a daily closing basis, resistance is very minor at 1154, 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 did manage a small green close on Friday which could suggest that Thursday's close at 1129 could be a successful retest of the decent support and possible double bottom at 1119/1121. Nonetheless, the close on Friday was not sufficiently higher to give confidence to the bulls that in effect it is a successful retest of that level. In addition, the index never did get back up intra-day to the 200-week MA, currently at 1145, which also means that the green close on Friday was mostly short-covering for the weekend and not any technical buying of consequence.

The SPX will likely pivot around the 200-week MA this coming week but being a weekly close situation it won't mean much any other day than Friday. In looking at the intra-day 60-minute chart, the 1141 level has shown to be some resistance, much like the resistance in the DOW at 11864, and therefore to be watched closely on Monday for clues as to what the traders will do at the beginning of the week. The channel line of the inverted flag formation that was broken on Thursday is currently at 1152 and it would not be surprising to see the index head up to that level at the beginning of the week. In addition, there is some previous daily close support between 1154 and 1159 that will now likely act as resistance, though previous low closes are usually not strong resistance levels. Nonetheless, any close above 1159 on any day this week would likely mean the index will head higher with the possibility of getting as high at 1200/1208, suggesting that the 1150/1159 level could be a pivot point this week.

To the downside the situation in the SPX is very clear. Any daily close below 1119 or intra-day break below 1101 will be seen as a strong negative likely pushing the index to go down to 1096 and a recession signal being given. If that happens there is no support of consequence until the 1043/1045 level is reached. As such, it can be said the index is hanging by a thread and any additional fundamental negatives could trigger another strong move downward.

Nonetheless, the close near the highs of the day on Friday suggests that at least at the beginning of the week some upside movement will be seen with 1141 to 1159 being the target to the upside.

The indexes came within a cat's whisker of breaking down this week after the Fed revealed what their next strategy is for supporting the economy. The strategy was determined to be insufficient to stop further downside from occurring and the markets reacted accordingly. Nonetheless, no definitive decision was made on Greece by the Europeans and with the beginning of the next earnings reports quarter only 2 weeks away, as well as the end of the month occurring this coming week and some window dressing being a possibility, the bears were unable to generate a concrete break of support leaving the indexes with a slight possibility of a technical rally this coming week if things in Europe don't get worse over the weekend.

There are 4 "B-type" economic reports due out this week that are unlikely to have much impact unless way out of line. As such, much of the action this week will depend on what is happening in Europe with Greece, and then to a smaller degree with Italy and Spain. In addition, 2 of the indexes are trading right around the 200-week MA and that is a technical indicator of some importance and not likely to be definitely broken unless there is confirmation that the economy is into a Double Dip recession. It is unlikely the indication of a recession will be definitive until the next set of economic reports, as well as earnings reports, comes out in about 2 weeks. As such, the probabilities suggest some choppy trading during this period of time with a slightly bearish tone.