DOW Friday closing price - 13060

The DOW's momentum to the upside has stalled and the index has been trading totally sideways for the past 4 weeks with 13300 as the top of the range and 13000 as the bottom of the range. Nonetheless, that could be changing this coming week as the index closed on the lows of the week on Thursday with the traders awaiting news on the Jobs Report that was due out on Friday. The Jobs report came in much lower than anticipated and the index traded as much as 130 points lower in London on Friday and is likely to be opening lower, below the 13000 level, on Monday.

The DOW had a classic reversal week last week (multi-week high, lower low and a close in the red) having made a new 52-month high at 13297 and then going below the previous week's low at 13032 and closing in the red. Classic reversals on the weekly chart are rare and generally more indicative than simple reversals. In the past 16 years there have only been 6 previous classic reversals and 5 of them resulted in the index dropping at least 1000 points in the next few weeks thereafter. With the high probability of follow through being seen this coming week, due to the negative Jobs report, it is highly unlikely this classic reversal will be the exception. Even then, the only classic reversal that did not see the strong move down was the one in November 2009 and that classic reversal only generated an additional 200 points to the upside over a period of 8 weeks before a 1000+ correction occurred. As such, the probabilities are high that the traders will take this reversal to heart.

On a weekly closing basis, resistance is minor at 13212 and decent at 13232. Above that level, there is minor resistance at 13695, minor to decent at 13907 and major at 14093. On a daily closing basis, resistance is strong between 13241 and 13264. Above that level, there is no resistance shown in the past 12 months. On a weekly closing basis, support is minor at 12980 and at 12922. Decent support is found at 12801. On a daily closing basis, support is minor to decent at 13046. Below that level, there is minor support at 13005 and decent at 12759.

The "general" resistance in the DOW at 13000 has held the index in check and now with 3 high daily closes between 13241 and 13264 the level has become a decent to strong resistance area that is going to require strong positive fundamental news to break. With only the earnings quarter left to supply good news, the probabilities have diminished that the level will be broken anytime soon.

On Friday in Europe, the DOW closed at 12970 (90 points lower than Thursday's close) and that is going to be a pivotal level for Monday inasmuch as it is where the 50-day MA is currently located. The 50-day MA has been an important support line since it was first broken to the upside in October of last year. The 50-day MA is always a strong indicator of trend and since October it has only been broken once for a period of 4 days in November when the Greek Crisis was occurring. A break and close below that line would be indicative that the trend has changed, especially since the index is not being affected by the kind of yo-yo information that caused the break in the past.

The DOW does not show much support below as the uptrend was strong, straight up and swift. Should the index close below the 50-day MA the next intra-week support of any consequence is at 12734. Additionally, the index will find some general support at 12700 level as 300 points below a major number usually finds some trader buying coming in. On a daily and weekly closing basis, though, 12810 is going to be very important as that was the high daily close for 2011 and was the breakout area for the recent rally up to 13297. Should the index break intra-week below 12700 or close 2 days in a row below 12810, the target would become the 50-week MA, currently at 12180.

The probabilities do not favor the DOW breaking below 12700 at this point if only because the first 3 weeks of the earnings quarter begin this coming week and generally speaking earnings tend to support the market, at least until the important companies have reported. Nonetheless, the index has begun to show weakness, both chart-wise and fundamentally, and the burden of proof is back on the shoulders of the bulls. That means that rallies will be sold and dips will require some positive fundamental news to recover.

There is an additional chart item that points to the DOW being under pressure this coming month and generating a red monthly close at the end of April. The DOW has had 6 months in a row of green monthly closes and going back 16 years that has only happened 3 previous times. Only once during that period of time has the index gone 7 months in a row in the green. Because of that reason alone, probabilities favor a red close in April, below March's close at 13212.

Monday is likely to be very important short-term inasmuch as the traders will be facing a lower opening in the DOW based on the less-than-expected Jobs report on Friday. Chart-wise there is no support below 13000 until 12734 is reached, other than the 50-day MA at 12970 and the bottom of the demilitarized zone at the same price. If the index closes below 12970 on Monday, a fall down to the 12700 area can be expected as there are no reports of consequence due out this coming week other than earnings reports and none of those are important until Thursday when the financial company's reports start coming out.

NASDAQ Friday closing price - 3080

The NASDAQ generated the first red close in the last 8 weeks effectively putting at least a temporary stop to the impressive rally seen since December. In the past 16 weeks there have been 3 red closes but this was the first one where the index went below a previous week's low "and" closed in the red suggesting this could be the start of a correction rather than simply a pause in the uptrend. By the same token, the index only closed 10 points below the previous week's 12-year high close also suggesting that the bulls have not yet begun to take strong profits.

The daily chart of the NASDAQ is a lot more suggestive of problems than the weekly chart inasmuch and the index has shown a lot of volatility over the last 3 weeks, gaps up and gaps down, and a lot of red as 6 of the last 9 daily closes have been red. Volatility is usually the first sign that an index is topping out.

On a weekly closing basis, minor resistance is found at 3090. Above that level, decent resistance is found at 3204. On a daily closing basis, decent resistance is found at 3122. Above that level, there is no resistance found above over the past 12 months. On a weekly closing basis, support is minor to decent at the previous weekly closing high at 2873. On a daily closing basis, support is minor between 3063 and 3068. Below that, resistance is minor at the recent breakout high at 2988 and decent at 2910.

The NASDAQ has built a double top on the daily closing chart with closes at 3122 and 3119 over the past 2 weeks. A minor sell signal was given on Thursday when the index got intra-day below a previous important low at 3069 with a drop down to 3052. A sell signal has not yet been given on the daily closing chart but should the index close below 3063 any day this week a sell signal would be given there as well. On an intra-week basis, any drop below 3044 would likely thrust the index down to psychological support level at 3000, which has not yet been tested but likely to be tested at some point. To the upside, the 3134 12-year intra-week high seen 2 weeks ago is now resistance. Should that level be broken, a rally up to the major weekly closing low from the year 2000 at 3204 would likely occur.

It should be noted that the NASDAQ shows a gap on Thursday between 3097 and 3086. Due to the fact that the index has been on a major uptrend the gap should be closed. Nonetheless, since the indexes are likely to open substantially lower on Monday because of the disappointing Jobs report it is possible and maybe even likely that a second gap will be generated that would be considered a runaway gap. Such a formation would have to be considered a powerful indicator of a top since the situation is perfect for such a formation to be built. This is especially true since the weakness seen does have a basis on fundamentals and not just charts. As such, if the NASDAQ opens below Friday's low at 3061 on Monday, and more impressively if it opens up below Thursday low at 3052 and proceeds to break 3044, the breakaway/runaway gap formation will be formed and it will be valid.

The NASDAQ is truly pivoting around 3044 as a break of that level will bring in a strong round of profit taking and the first real sign that a at least a temporary top has been found. Like with the rest of the indexes, Monday will likely be the important day of the week for the index.

SPX Friday closing price - 1398

The SPX generated a reversal signal this past week having broken above the previous week's high at 1419 with a rally up to 1422 and then closing in the red. The SPX seems to be somewhat mimicking the Apr-May 2008 action inasmuch as 1422 also became a minor resistance level at that time from which the index traded back down to 1383 before moving up to 1440 and then collapsing. The index now shows a 3-week trading range between 1386 and 1422 that is very similar to the one seen during that period of time. It is important to note that during the next 8 trading days most of the big financial stocks report earnings, likely meaning that the SPX will be the first to decide fundamentally what to expect for the near future.

It should be noted that the SPX continues to be the only index that has been unable to break its 2008 high or even reach it (May08 high was 1440), suggesting that the market is still being held back by the financial industry and the problems associated with it. In that respect the financial industry will need to show some additional recovery before the traders buy aggressively. It should be noted that this week, and the beginning of the next, will be fundamentally important to the index as all the big financial companies report earnings during this period of time.

On a weekly closing basis, resistance is minor to decent at 1425. Above that level, there is minor resistance at 1455, minor to decent at 1504 and strong resistance between 1552 and 1561. On a daily closing basis, there is minor resistance at 1409 and minor to decent at 1416 and decent at 1419. Above that level, there is no resistance found in the last 12 months. On a weekly closing basis, support is minor at 1397, very minor at 1388 and at 1375, decent at 1363, minor again at 1325 and decent to perhaps strong at 1268. On a daily closing basis, support is minor to decent at 1392. Below that level, minor to decent support is found at 1363 and decent to perhaps strong at 1343.

The SPX has been unable to get above or even up to the May08 highs at 1440 level on this rally and that continues to be a strong negative as the other indexes have not only broken above their May08 highs but have not yet broken below them since the breakout occurred 4+ weeks ago. It certainly seems unlikely that the general uptrend in the market can continue if the financial industry persists in acting like an anchor. The SPX will be the first index getting fundamental information of consequence in the form of earnings reports the end of this week and the beginning of next. It is likely that the traders will wait for that information before making any kind of strong decision on what the index will do for the mid-term.

On a daily closing basis, resistance in the SPX is decent to perhaps strong at 1426 (the high daily close in May08). Nonetheless, through the recent action and failures starting to be seen in all the indexes, the recent high daily close at 1419 has taken on additional strength. Lesser resistance can be found at 1409 and at 1416 but overall the 1409-1419 area has become a brick wall that will not be broken unless fundamental help is received.

Minor support intra-week is found between 1383 and 1386 but should that level get broken the probabilities will be high that the index will drop down to the high daily and weekly close seen in 2011 at 1363. The previous high daily close has to be considered an important support and pivot point as below it there is no support until 1286 is reached. A drop below 1363 would mean the SPX is in a strong correction that would not likely be overturned until the latter part of the year. It should be noted that the chart itself is very prone to a correction of consequence occurring inasmuch as very little previous low support has been built on the way up. The support of consequence is at 1363 but that is a previous high and previous highs are never considered to be more than a minor to perhaps decent support. The index only shows very minor previous low support at 1340 and then again at 1300, but the key word is "minor". Stronger support from previous lows is not found until the 1254-1276 level is reached.

The SPX will give a sell signal if it closes below 1392 and with the index closing about 10 points lower in London on Friday it means the index will be opening below that level if the index is unable to rally tonight and tomorrow morning. The probabilities are favoring a drop down to 1363 this coming week.

The indexes gave some clear indications that a failure to follow through scenario may be occurring. No sell signals have yet been given but if the indexes open up as expected on Monday, after the less-than-expected Jobs report, short-term sell signals will be generated. The fundamental picture is starting to change as the economies of the world, such as in China and Europe, seem to be on the verge of a recession as shown recently in the manufacturing data coming out of those countries. The mood of the market has begun to change and the strong optimism felt as little as 4 weeks ago has begun to be replaced with worry about the possibility that the news will continue to get worse.

Earnings report quarter is starting this week and that had been something the traders had previously been depending on for further positive news and continuation of the uptrend. Nonetheless, analysts have recently begun to lower expectations as many stocks have been downgraded recently and it is now being expected that earnings may start disappointing rather than being uplifting. If that does turn out to be the case it is going to be difficult for the indexes to continue on upward, especially after they have increased in value over 15% in the past 5 months.

The next 2-3 weeks are going to be a key to what the indexes do the next 6 months. If the news continues to be less-than-expected the bulls will not have any ammunition with which to bring in "new" buying. In addition, the market is only 3 weeks away from the start of May and seasonally the "sell in May and go away" motto comes into play. Probabilities have now shifted back to the bears as the burden of proof is back on the shoulders of the bulls.