DOW Friday closing price - 11983

The DOW generated a red close on Friday based on the fact that the details of the European rescue package have not been released yet and bickering and lack of agreement among the participants continues. Further upside is dependent on the package being doable, not just agreed to, and until that information is decided upon and made public the market will remain uneasy and unconvinced.

On a technical note, the red close in the DOW was not surprising inasmuch as the index broke above the previous low weekly close at 11858 the previous week as well as above the 50-week MA, currently at 11880, and above the 200-day MA, currently at 11980, and those levels were likely to be re-tested before any further upside could be expected. This is especially true since the index is extremely overbought and has tenuous support below, causing the traders to lack the confidence in continuing to buy at these levels without first building some support as well as learning more regarding the details of the package.

On a weekly closing basis, resistance is minor to decent at 12231, minor at 12391, decent at 12681 and strong at 12810. On a daily closing basis, resistance is minor at 12044, minor to decent between 12231 and 12258, minor to decent again between 12391 and 12426, decent to strong at 12724 and strong at 12810. On a weekly closing basis, support is decent between 11858 and 11934, and then nothing until minor support is found at 11509. Below that level, there minor support at 10992, and strong between 10771 and 1081. On a daily closing basis, support is minor between 11898 and 11951, minor at 11706 and decent at 11657. Below that level, there is decent support at 11613.

The DOW closed right at the 200-day MA at 11980 and only slightly above the 50-week MA at 11880, suggesting that a small pause/correction to the recent strong rally is occurring, likely to get rid of some of the overbought condition that presently exists. By the same token, the traders are also not yet totally convinced that the European agreement is going to work as intended, especially since the finance ministers can't seem to decide on the details of the package. As such, the red close this past week is not only seen as a much needed pause, a retest of the breakout levels but also as a cautionary retreat awaiting further news.

The red close in the DOW does make last week's close at 12231 into a second successful retest of the 34-month high weekly close seen in April at 12810. This second successful retest will need to be confirmed next week with another red close as well as a close below the 50-week MA, currently at 11880, in order to have any strength. The short-term trend is up as the index has rallied 1880 points in the last 5 weeks but the trend is dependent on the news continuing to be positive and that is not a given. The critical first 3 weeks of the earnings report quarter are over and all the important economic reports for this month are out, leaving the index to move on news about Europe and on technical factors. The news about Europe may be all factored in even if the results are positive as expected so that leaves technical factors to likely be the deciding factor for the next 4 weeks.

Technically speaking, the DOW showed some weakness this past week by not following through on last week's close on the highs of the week and did give a small sell signal closing below the most recent low daily close at 11706 on Tuesday (closed at 11656). Nonetheless, the previous low daily close of major consequence at 11613 held up and the small sell signal was not confirmed as the index closed above that level the very next day, suggesting that the traders are still looking for the European agreement details to make any kind of decision.

Nonetheless, it is evident that the DOW now has a clearly defined trading area between the most recent high daily close at 12231 and the most recent daily low close at 11656 where a close above or below either of those levels is likely to be indicative and significant. The monthly chart suggests that further upside will be seen in November, above October's high at 11284 but it should be mentioned that the 11634 level seems to be a pivot point on that chart and the fact the index got down to 11630 this past week is likely a sign that the traders are watching that level closely. This certainly fits in with the fact the 11613 is such an important daily close support level and pivot point.

The DOW closed on Friday right about in the middle of the trading range mentioned above showing the uncertainty that the traders are feeling at this particular moment. The G20 meeting ended on Friday without any details being given regarding how the rescue package is supposed to work. There were some statements made to the fact that perhaps those details will not be decided upon this year. It was not an official statement but nonetheless has to be considered worrisome as more uncertainty will likely result in selling, not buying, being seen. The only other important event to be decided this weekend is whether Papandreau will continue to be the Prime Minister of Greece or not. That is an important decision because if not, a new government will need to be voted on within the next 3 days and a decision as to whether to accept the austerity measures would then be at risk. Certainly if Greece leaves the Euro a run on the banks will occur and a default will likely occur causing a domino effect that would affect the financial industry worldwide. Simply stated, there are few things that are likely to go right this weekend and lots of things that could go wrong.

Nonetheless, from a chart point of view there is no way that a probability number can be given at this time as the charts suggest that further upside will be seen but the fundamental outlook suggests it is going to be difficult, perhaps impossible, for further upside to occur.

NASDAQ Friday closing price - 2686

For the third time in a row, the NASDAQ closed a runaway gap of a breakaway/runaway gap formation to the upside giving notice that technical factors continue to take a back seat to the fundamental events that are occurring in Europe. The traders remain uncertain about the details of the agreement and likely will wait for further clarification before deciding on a direction. The NASDAQ, much like the DOW, closed on Friday at the 50-week and 200-day MA's (both currently at 2688) giving notice that a red or green close on Monday, after further news from Europe over the weekend, could signal direction from now on.

The NASDAQ did not follow through to the upside off of the previous week's close on the highs of the week. The action this past week stresses the fact that this entire rally is based on a positive resolution to Europe's problems. With those problems still somewhat unresolved or at best unexplained to the satisfaction of the traders, the index has stalled waiting for further news.

On a weekly closing basis, resistance is minor at 2737, decent at 2833, decent to strong at 2859 and strong at 2873. Above that level there is no resistance until psychological resistance is found at 3000. On a daily closing basis, resistance is minor at 2697/2699, decent at 2738, minor at 2765, minor to decent at 2799 and decent at 2833. Above that level, resistance is decent to strong at 2858 and strong at 2873. On a weekly closing basis, support is minor between 2637 and 2643 and decent to strong at 2616. Below that, minor support is found at 2595 and minor to decent at 2505. On a daily closing basis, support is minor at 2638 and strong between 2599 and 2616.

It is evident that the NASDAQ is on the cusp of deciding something of consequence as any further upside above the previous week's high at 2753 will thrust the index up at least an additional 75 to 100 points and put the index in a position to resume the uptrend and make a new 11-year high. By the same token, the 2600 level (specifically 2599 to 2616 on a daily closing basis) has to be considered pivotal support that if broken would also drop the index at least an additional 100 points to 2500 but could generate the kind of selling that would put the index in a position to retest the 200-week MA, currently at 2240. The decision all depends on what happens in Europe and how the traders feel about the ability of the Europeans to get it done right.

The NASDAQ might be in the process of building a minor Head and Shoulders formation with the left shoulder being the high seen 10/24 at 2703, the head being the 2753 high and the right shoulder possibly being the high seen on Thursday at 2699, the necklines being the lows seen on 10/26 and on Tuesday at 2598 and 2597, respectively. The H&S formation is simply a "possible" formation and not yet one that is fully established but if it does get established and the 2597/2598 level gets broken, the objective would be 2442.

The NASDAQ continues to show a gap between 2512 and 2519 that has tried to be a breakaway gap of a breakaway/runaway gap formation now for a total of 3 times. Nonetheless, each runaway gap has been closed and with each failure the probabilities increase that the traders will begin to target the downside once again, making the 2512 level a major target. If the 2597 level gets broken, the probabilities of a drop down to 2500 will increase strongly. Below 2597 there is nothing in the way of previous intra-week support until minor support is found between 2412 and 2438. Even then that support is not considered strong and drops down to the stronger support around the low 2300's could easily happen if the dominos start falling.

To the upside, it is evident that the previous week's high at 2753 is now considered decent resistance. Nonetheless, it should be noted that there wasn't any previous resistance at that level which means that if the news out of Europe is positive and the index starts heading higher that the 2753 level may not stop the index making the low 2800's a high probability of being seen.

No probability numbers can be given at this time as this is basically a fundamental issue and the results of that cannot be predicted at this time. Nonetheless, the overall fundamental picture (not considering Europe at all) suggests that the economy is simply surviving and not expanding in a great form, which in turn suggests that further upside of consequence, is not likely to occur this year.

SPX Friday closing price - 12853

The SPX did generate some negative action this past week as the index did close in the red on Friday making the previous week's weekly close at 1285 into a successful retest of the 1268 level that was the breakdown level on the weekly closing chart originally. In addition, the index generated 2 daily closes this week below the 1256 level (including Friday), which has to be considered a strong negative as that level was a major support for the first 6 months of the year and has been an important resistance over the past few weeks as well. With the European situation being a financial one and the index representing mainly financial companies, the close below 1256 has to be considered a sign that the traders believe that the news coming out of Europe this weekend will not be a strong positive.

The SPX was also the only index that closed indicatively below the 50-week and 200-day MA's, currently at 1269 and 1273 respectively, suggesting once again that the index is not looking to go any higher at this time. By the same token, some uncertainty is still seen in the charts as the break of 1256 was not by a wide margin and therefore not strongly indicative of negative feelings. Nonetheless, it does put the burden of proof on the shoulders of the bulls.

On a weekly closing basis, resistance is minor to perhaps decent at 1285/1288, and then nothing until decent resistance is reached at 1343/1345. Above that level, strong resistance is found at 1363. On a daily closing basis, resistance is minor to decent at 1305/1307, decent at 1343/1345, and strong between 1353 and 1363. On a weekly closing basis, support is decent at 1268 and minor at 1239. Strong support is found between 1123 and 1131. On a daily closing basis, support is minor at 1229 and minor to decent at 1218. Below that level, there is some minor support at 1200 and then nothing of consequence until the low 1100's are reached.

Like with the other indexes, the SPX is in a trading range between 1215 and 1292 that has little meaning. Nonetheless, a break above or below either one of those levels would likely be indicative of further action of consequence in that direction. The index did close right in the middle of that trading range and a red or green close on Monday will likely be indicative.

The chart formation, the close below the important support levels on Friday, and the close below the MA's mentioned above suggests that the probabilities favor the downside. This is partly due to the fact that even if European powers can come up with a good rescue package they are still faced with overwhelming financial problems in not only Greece but in Italy, Spain, and Portugal as well. Such problems, even if partially solved, will continue to weigh heavily on all financial institutions worldwide.

The action and close on Monday is likely to be very indicative.

The indexes closed this past week at what can be considered a pivot point. The close on Friday has left the door totally open for both sides and the action will likely be dependent on what the Greeks decide to do this week as well as on any further news from the European powers regarding the details of the agreement as to how the plan is to be instituted. As of this writing, there has been no new news regarding those 2 issues.

The economic news this past week was slightly tinted toward the positive side as the reports showed that the economy is still having problems but continues to grow rather than shrink, though at a small pace. No economic news of consequence is scheduled for this week and therefore traders are likely to key off of Europe once again. Nonetheless, it is starting to become evident that the rescue package that the Europeans came up with still has quite a few holes in it and that it is not likely those holes will be filled anytime soon, suggesting that the euphoria about the agreement was likely overdone. If that is the case, the indexes are likely to correct back down toward the recent lows as those lows have not yet been tested successfully leaving bull traders with big risk and small profit potential. Simply stated, it is very difficult to see the indexes heading higher without some strong reasons to believe the economy will improve above and beyond what is being shown now.

By the same token, the market "wants" to go higher and anything that comes out that supports that idea will be meet with additional buying. This is especially true since seasonal trends tend to favor the indexes rallying from October to January. Though it is unlikely that anything will be clearly resolved over the weekend, Monday's action and close will probably nudge the traders in one direction or the other for the next few weeks. There is no way to tell what that direction will be at this time (Sunday afternoon).