DOW Friday closing price - 11231

The DOW generated a strong move down of over 500 points to close below the 100-week MA, currently at 11270, as well as on the lows of the week suggesting that further downside will be seen this coming week. The news from Europe continued to be dismal with Italian Bonds going above a 7.5%% yield and Portugal's bonds given a "junk" bond status. As the week progressed the index deteriorated even further with many traders out for the Thanksgiving holiday week.

The DOW broke all the MA's as well as supports during the week and now finds itself with clear skies to the downside for another 500-600 points before any support of consequence is reached. The 11000 level could offer some psychological support but chart-wise there is no previous area where support was created until 10929 is reached and even then that support is considered to be minor at best. With no scheduled economic reports of importance due out until Thursday's ISM Index Report, there doesn't seem to be anything that can stop further downside at the beginning of the week, unless some surprising news is generated in Europe over the weekend. None is expected.

On a weekly closing basis, resistance is at 11509, minor again at 11858, very minor at 12153 and decent at 12231. On a daily closing basis, resistance is minor to decent at 11482 and decent at 11613. Above that level, no resistance is found until the 12153/12231 area is reached. On a weekly closing basis, support is minor at 10992 and decent between 10817 and 10771. On a daily closing basis, support is very minor between 11139 and 11149, minor at 10992, and decent to strong between 10771 and 10817. Strong support is found at 10655.

The drop in the DOW this past week did a lot of chart damage that will be difficult to negate without some strong positive fundamental news. All the supports that should have held if the index was to head higher for the seasonal Christmas rally were broken and confirmed this past week, and more importantly broken because solutions to the problems in Europe seem to lessen by the minute and will not likely be addressed until the New Year. With potential for an ultimate collapse of the Euro, and few plausible solutions even mentioned, traders seem to be throwing in the towel for the time being.

One of the big problems that the bulls in the DOW are facing is that the index moved almost straight up from 10404 to 12284 over a period of 4 weeks with no corrections of consequence occurring other than a small drop down to 11296 that occurred the second week of the rally. With that level breaking on Thursday and the break confirmed on Friday, there is no "recent" (last 4 weeks) support found until the 10404 level is reached. As such, if the fundamental news from Europe continues to be negative, there is no area close-by that the bulls can feel confident in buying until the previous lows are reached.

The DOW does show some previous (before the recent rally) daily closing support at the demilitarized zone with a close back on September 9th at 10989. Certainly the demilitarized zone of the index will generally be considered a "natural" support area. By the same token, if the news continues to be bad, as it was this past week, the support found there will likely be minimal and perhaps even very temporary as the index has been falling down almost as fast as it rallied previously. Reaching the 11,000 level this coming week, though, seems like a high probability and it could be seen as early as Monday.

To the upside, the 50-day MA, currently at 11542, which was broken on Thursday, will be decent resistance now. This is especially true with 2 previous intra-week highs of consequence in August and September at 11529 and 11550. If the bulls are able to get the DOW above that level, the important high seen on August 31st at 11712 (11613 on a daily closing basis) is likely to stop whatever rallies are seen unless some fundamental miracle occurs. On a more sensitive basis and using the 60-minute MA, the high seen Friday morning at 11361 should not be broken unless a small pause in the selling were to happen. Based on the action on Friday such a pause is unlikely to occur.

This past week the DOW broke supports it should not have broken if a Xmas rally was to occur. With no support of consequence nearby and the fundamental news continuing to be negative, the probabilities strongly favor the index having another 500-600 point move down this week with 10600-10700 being the objective.

NASDAQ Friday closing price - 2441

The NASDAQ generated a "rare" gap down on the weekly chart having shown a low the previous week of 2567 and a high this past week at 2539. In the last 10 years that I was able to research there has only been 1 previous down weekly gap seen and that was the last week of Sep08 when the market was reeling from all the negative financial breakdowns that occurred that year and the index gapped down from 1947 to 1905. It should be noted that the previous gap down did generate a further drop down thereafter to 1265 (640 points lower) and it took 9 months before the index was able to get back up high enough to close the gap. As such, the fact the index gapped down this past week, in conjunction with the fact the news from Europe has been dismal, suggests that the gap is viable and that there is a real possibility that it won't be closed anytime soon.

Like the DOW, the NASDAQ shows open air below without support of consequence until the 2331 level is reached (110 points lower). The index now has momentum to the downside and the close on the lows of the week suggests that the bears will come in on Monday and continue to push down hard to dishearten the bulls and put them totally on the defensive. This strategy is not hard to accomplish right now as the fundamental picture in Europe is bleak and the technical picture is weak as well with all MA's and minor to decent supports having been broken over the past 10 days.

On a weekly closing basis, resistance is minor to decent at 2530 and at 2616/2622. Above that level, decent to strong resistance is found at 2737. On a daily closing basis, resistance is minor to decent between 2546 and 2555 and between 2611 and 2622. Above that level, minor to decent resistance is found at 2685 and decent to strong between 2727 and 2737. On a weekly closing basis, support is minor 2415 and decent at 2341. On a daily closing basis, support is minor 2355 and decent to strong between 2335 and 2341.

The NASDAQ has some minor intra-week support at the 2414/2420 from intra-week lows seen the first and third week of September. Nonetheless, that support is considered minor inasmuch as it was already convincingly broken 4 weeks ago with the drop in the index to 2298. As such, that support is not likely to hold up unless there some positive news comes out. Drops down to that level, though, on the daily, weekly, and monthly charts, are highly probably no matter what the news is. By the same token, if that level of support breaks, a further drop of about 80 points down to the 2331/2338 is likely to be seen as no support is found below 2414 until that area is reached.

To the upside, the NASDAQ does not show any resistance until the bottom of the gap area at 2539 is reached. There is further intra-week resistance at 2555 making that area a decent resistance level, especially with the strong meaning that the weekly gap portends to be. Intra-day, using the 60 minute chart, some resistance will be found at 2480. A break above that level likely means the index will be testing the gap area and resistance between 2539 and 2555. Based on the charts, the probabilities suggest that NASDAQ will drop down to the 2331/2338 level either this week or in the next few weeks. Certainly the fact that the index rallied straight up from the 1-year low at 2298, without a true fundamental change (rallied based on hopes the Europeans had fixed their problems), makes a drop back down to test that level almost an absolute technical necessity as trends do not generally change without a strong fundamental piece of news or a substantial technical retest of the lows. With fundamentals continuing to be negative, a retest of the lows is now likely to occur. The question now becomes whether the recent lows will hold up or not.

SPX Friday closing price - 1158

Once again the SPX finds itself under strong selling pressure based on negative financial numbers from Europe. The index broke below the 100-week MA, currently at 1200, convincingly this past week and is now close to reaching once again the 200-week MA, currently at 1136. The index closed on the lows of the week and with no support whatsoever until 1136 is reached the probabilities are high that at least another 22 points to the downside will be seen early in the week.

The SPX is likely to be the first index to get back down to the Aug/Oct lows and likely will be the index that the traders will key on to determine what the market will do from here. The index has already closed below the 200-week MA twice this year and another close below that line, especially if the low weekly close for the year at 1123 is broken, would be a clear signal that a recession is in place and that further downside of consequence would be seen.

On a weekly closing basis, resistance is minor 1176 and minor to decent at 1216. Above that level, there is minor resistance at 1263 and decent at 1285/1288. On a daily closing basis, resistance is minor at 1175/1177, decent at 1218, and minor at 1254. On a weekly closing basis, support is decent to strong between 1123 and 1131. Below that level, there is no support until minor to decent support is found at 1064/1066. On a daily closing basis, support is very minor at 1154 and at 1129, decent between 1119 and 1123, and decent to strong at 1099.

The SPX continues to be the weak sister in the index trio inasmuch the problems that are worrying the market are directly related to fiscal issues in Europe. With those in disarray and looking worse every day it is evident the index will be the barometer for what the traders think will be the outcome. The index is now within shouting distance of the 200-week MA, as well as the daily and weekly closing lows for the year and if those are broken this coming week, the technical aspects would suggest that the major psychological support and pivot point at 1000 would be re-visited.

To the downside, reaching the 200-week MA at 1136 is highly probable as the index closed on the lows of the week and the chart shows no intra-week support until 1136 is reached. Getting down to that level, though, will put the index at great risk of generating a domino-like fall to the downside as the major 52-week weekly closing low at 1123 would only be about 13 points below and a close below that level would be a strong sell signal. Adding to that scenario would be the fact that a close below 1096 would be a 20% drop from the highs which would generate a recession signal in the index.

To the upside, the SPX does not show any resistance until the 1206-1218 level is reached but that level will now be once again considered decent to strong resistance. If there is any pause to this recent downtrend, or some positive news comes out, rallies up to that level will become probable. Nonetheless, at this moment the index is under strong selling pressure and no technical buying is likely to be seen until at least the 1136 level is reached.

The SPX continues to be the negative indicator of the indexes and this week it will probably play even a more important roles inasmuch as the index finds itself only 2% from the important support areas. With the index having dropped over 4% in value this past week, it suggests that this week could be a very important week for the index.

The fundamental news coming out of Europe continues to be bleak with Italian Bond rates now above the un-defendable 7.5% area. In addition, Portugal's bonds were downgraded to "junk" status on Friday causing further stress to the European financial community. Though the Europeans seem to be trying to bond together to find solutions, the possible solutions are close to impossible to accomplish under the present circumstances. As such, the outlook for the Euro continues to get bleaker by the minute.

Traders are starting to wake up to the fact that without Europe solving their economic problems no growth in any world economy is likely to be seen and if the Euro collapses a world-wide recession would likely occur that would affect everyone, no matter what individual economies are accomplishing. In addition to these almost epic problems from Europe the U.S. is also seeing its own problems increase due to the inability of Congress to agree on solutions to the issues at hand, such as the budget deficit. Already some forced spending cuts worth $1.2 billion have been generated when the parties (Republicans and Democrats) were unable to come up with a bi-partisan solution through the "super committee" of a new plan to reduce the budget deficit. As such, those plans have now been tabled until the next election in November 2012, delaying the solution to the problem by at least 1 year and causing the world to lose faith in the stability of the U.S. due to its inability to work to the benefit of its populace and the economy.

With nothing but negatives on the horizon, possibly even catastrophic, traders have stopped believing that a solution will occur at this time, especially with a holiday season looming when legislative activity is on its low, and have begun to liquidate long term positions knowing that at least for the next 6-8 weeks little is likely to occur of a positive nature. With the indexes having had a one-of-a-kind year it seems that the best place at this time place to have money is on the sidelines. Further downside is expected. The only question is how much.