DOW Friday closing price - 13075

The DOW had a strong positive classic reversal week having gone below the previous week's lows and then closing above the previous week's high and on the high for the week, suggesting that further upside and perhaps of consequence will be seen this coming week. This all came off of comments by ECB president Mario Draghi that they were prepared to do whatever was necessary to support the beleaguerd banking industry in Europe.The conviction heard in Drahi's words caught everyone by surprise and a strong short-covering rally occured that created the reversal week.

Technically speaking, the positive classic reversal seen in the DOW should generate strong follow through to the upside and yet the rally was not technically motivated so if the statement made does not "pan out" as hoped for, the index will give up its gains immediately likely negating the reversal week. This is especially true since none of the earnings and economic reports seen over the past couple of weeks have been bullish enough to produce a rally of this magnitude, and much less a sustained rally.

On a weekly closing basis, resistance is strong at 13228/13232. Above that level, minor resistance is found at 13265, decent resistance is found at 13907, and major resistance is found at 14093. On a daily closing basis, resistance is minor at 13115 and strong between 13241 and 13279. On a weekly closing basis, support is minor at 12922, and minor to decent at 12849. Below that level, support is minor at 12772, minor again at 12640 and decent at to perhaps strong at 12611. On a daily closing basis, support is minor between 12943 and 13005, minor to decent at 127115, and decent to strong between 12575 and 12617.

On a chart basis, the DOW is nearing a level between 13100 and 13300 that has proven to be strong resistance since April 2009 when the index had its first bounce off of the news the market was heading into a recession. The index got back up and slightly above the 13100 level back in Mar/Apr of this year with a rally up to 13289/13338 but the bulls were unable to generate any additional buying and the index proceeded to drop back down to the 12000 level in just a matter of 5 weeks. The index is now seeing the very first retest of that level and if the strength seen the last 2 days of the week continues this coming week and the resistances get broken a new leg in the 3-year uptrend might begin.

The DOW forged through the double top at 12943 with relative ease on Friday hitting stop loss orders of consequence as the bears scrambled to get out of their short positions. The mood had been strongly negative until the Draghi comments came to light on Thursday but the resistances did not get broken until the comment came out on Friday regarding the Draghi meeting with the Bundesbank this weekend. The traders were worried that some agreement would be made this weekend that would help solve the debt and default problems in Europe and that the market would open substantially higher on Monday. That was the straw that broke the resistances on Friday and generated the reversal signal. The probabilities do not favor the kind of an agreement the traders are hoping gor and it is likely that the traders will start putting back their short position this week if that happens. Nonetheless, that won't be known with any certainty until Thursday when the ECB has its meeting.

By the same token, if some agreement is made the bulls will take advantage of the news and attempt to take out the highs made in April at 13338. If that does occur, the "technical" traders will be forced to become buyers knowing that no resistance whatsoever is found above 13338 until 13780 is reached. It should be mentioned though, that the intra-week resistance at 13136 is decent and will likely be respected if no tangible positive news comes out from the meeting. The technical/chart probabilities do favor the DOW going above last week's high at 13117 but it is very possible that the 13136 level will stop the rally and selling will immediately come back.

To the downside, things have changed a bit as the rally did cause damage to the short aspect of the chart, at least for a few days. The 12700 level will once again become decent support but now the 13000 demilitarized zone will also offer support. With the rally on Friday the bulls will likely continue to buy even small dips in the hopes they can generate new buying, even if no positive news from Europe comes out. In addition, the daily close double top at 12943 that was broken on Friday will also offer support. Simply stated, if there is no good news over the weekend but no "bad" news either the probabilities favor the bulls defending the 12940-13000 level until something more decisive comes out.

This coming week is fundamentally important even without anything coming out of Europe on Monday. The Fed meets this week and the results of that meeting will come out on Wednesday at 2:00pm. This is going to be "after" the ISM report comes out in the morning. With last month's report being under 50 and showing recessionary numbers, if that number is duplicated this week the Fed may have to announce further easing or a stimulus package. In addition, the ECB meets on Thursday and the traders will be closely monitoring the results of that meeting, especially afther the Draghi comments last week. The jobs number on Friday is also important as last month there was an "increase" in unemployment and if that trend starts once again it will cause additional worry that the recovery is over.

It can be said that with all the information due out this week and with the possibility that the Fed and the ECB will announce something of consequence by the end of the week that this week will be highly important and decisive. It should also be mentioned that because of the rally last week and the expectations that something positive coming out of these 2 meetings that the traders will key more on the upside than the downside, at least until the news is out.

NASDAQ Friday closing price - 2958

The NASDAQ underperformed the other indexes once again this week, mostly because several of the important index stocks such as AAPL reported less than expected earnings. Nonetheless, the index was able to close the runaway gap that had been generated a week ago and did close on the highs of the day/week suggesting that further upside will be seen this coming week and the breakaway gap between 3001 and 3016 targeted.

The NASDAQ was not able to clear the previous intra-week high resistances at 2987 and at 2976 (2976 and 2965 on a daily closing basis) and that keeps the index in a downtrend and means that Monday's action and close could still determine whether further upside action will occur or not. With the index having been the leader to the upside during the past 4 years a red close on Monday could be a strong sign that the rally on Friday was bogus.

On a weekly closing basis, resistance is minor at 3000, minor to decent at 3069, and decent to strong at 3091. On a daily closing basis, minor to decent resistance is found at 2965 and decent resistance at 2976. Above that level, minor to decent resistance is found at 2988, decent resistance is found at 3069 and strong at 3122. On a weekly closing basis, support is minor at 2908 and minor to decent at 2778. Below that, decent support is found at 2747. On a daily closing basis, support is minor at 2910, minor to perhaps decent at 2866/2870, very minor at 2849, and decent at 2836.

The NASDAQ did generate a gap to the upside this past week between 2970 and 2976 and if the index gaps up on Monday, and especially if the recent high at 2987 is broken, it would be considered a bullish breakaway and runaway gap formation and likely give the bulls the kind of technical chart fuel necessary to thrust the index upward to close the downside breakaway gap at 3016 and perhaps even to go up to test the 14-year high at 3134.

From a fundamental point of view this kind of a rally in the NASDAQ seems implausible as all 3 of the strong stocks in the index (AAPL, NFLX, and AMZN) reported less than expected earnings and less than expected guidance this past week suggesting further weakness in the future and not further strength.

The NASDAQ will likely find itself being the index that traders watch on Monday, as well as the rest of the week, if for no other reason than the fact that recent resistance is still above and not below as is found in the other indexes. In addition, even if the index is able to break above the recent resistance levels, it will still find the 3000 level a formidable resistance area from the breakaway gap as well as psychologically. By the same token, if the index does get up to 3016 and closes the gap, no resistance is found until 3085 and then the strong resistance at 3134.

To the downside, the NASDAQ shows some minor support on an intra-week basis at 2946 and decent support at 2987/2900. A drop back down to 2900 would be disappointing to the bulls as the entire rally on Friday would be negated if that drop is seen. Further and much stronger and much more indicative support is found at Wednesday's low at 2837. A break of that level would also mean a break of the 200-day MA and if that happens at this time it would be a strongly negative sign.

It is evident that Monday's opening in the NASDAQ will determine how the index trades until Wednesday when the FOMC meeting results come out. The bulls still need to show the ability to break resistance and do so in a manner that will bring in new technical buying at these levels, especially since the earnings reports that came out this past week are not supportive and need to be ignored to generate the further rally.

SPX Friday closing price - 1385

The SPX, like the DOW, also generated a positive classic reversal week having gone below the previous week's low and then closing above the previous week's high, also suggesting further upside of consequence will be seen. Nonetheless, for this coming week the SPX will likely take center stage and be the leader, up and above anything else that happens in the other indexes, due to the fact that what is happening in Europe is directly related to the financial community and will benefit or affect the index the most, depending on what is decided at the ECB meeting on Thursday.

On the other side of the coin, the SPX is still 12% away from its all time high at 1576 (compared to 8% in the DOW) and with all the regulations that have come out regarding the banking industry since the Lehman debacle, not only in the U.S. but world-wide, profits for the banking industry are unlikely to ever reach the levels seen before meaning that leadership of the index in the market is going to be tough to achieve, also meaning that if the index is able to break its resistance levels above at 1422, the other indexes would likely take off in an impressive manner.

On a weekly closing basis, resistance is decent to strong at 1403 and strong at 1408. On a daily closing basis, resistance is minor at 1392, decent at 1405 and strong at 1419. On a weekly closing basis, support is very minor at 1354, minor at 1335 and decent 1278/1279. On a daily closing basis, support is minor at 1366, minor to decent at 1358, minor to decent again at 1343 and at 1334.

The SPX closed on the highs of the day/week on Friday and further upside is likely to be seen. Minor resistance will be found close by at 1392 but with the strength of the reversal the probabilities favor the index getting up to the strong psychological level at 1400. In looking at the chart, though, resistance is actually found between 1415 and 1422 and that means that if the index gets up to 1400 it will likely go higher. The chart is set up in a way that rallying back up to the highs seen in Apr/May will generate a high probability of the resistance being broken and that likely bring strong technical buying and an attempt to get up to the all-time high at 1576. It should be mentioned that even though 1392 is considered a minor resistance, both intra-week and on a daily closing basis, because of a previous low daily close of some consequence at that level it can be considered a pivot point. As such, it is likely the traders will be paying close attention to 1392 this week.

To the downside and on a daily closing basis, the 1374/1376 level in the SPX will also likely be considered a pivot point to the downside as well as a possible failure to follow point. The breakout on Friday was impressive but if the index closes below the most recent high daily close the rally would lose steam. Further support on a daily closing basis is found at 1358 and 1343, with 1343 being a long standing pivot point in the index. A daily close below 1337 would generate a sell signal and confirm a failure to follow through signal.

The SPX will be a big key this week mostly because of the ECB meeting on Thursday where the amount of support and commitment toward the beleaguered banking industry in Europe will likely decide their fate.

The market is facing another critical week with important economic reports as well as possible decisions from the Fed and the ECB scheduled. The bears find themselves in a precarious position of having to cover big short positions should the late-week rally be extended if the hoped-for actions by the Fed and the ECB occur. Technically speaking the bulls are now in control and that does set up a possibly dichotomy between reality and what could end up being simply hope.

The ISM Index report comes out on Wednesday and the Jobs report on Friday, and sandwiched between them is the FOMC meeting results on Wednesday at 2:00pm and the ECB meeting in Europe on Thursday. Expectations are high that both of these entities will announce some "new" positive measures to combat the recessionary pressures that are being felt world-wide. Further confusion is likely to reign after the announcements simply because there are no "sure-fire" solutions available and even if the hoped-for help is given it is not guaranteed to work. As such, traders will find it very difficult to make decisions other than perhaps for very short-term trading. Day and short-term traders are likely to have success but everyone else will find it difficult to make decisions on what to do, even after all the information is out.