DOW Friday closing price - 12846

The DOW took a leg to the downside this past week as the world's economies showed signs of recession and the debt crisis in Europe began once again to make noises. The index broke below the important support at 13000 early in the week and rapidly fell to the 12700 where general support, as well as previous low support of consequence was found. A retest of the 13000 level was seen on Thursday but the bulls were unable to accomplish getting back above 13000 and negating the break, thus causing a short-term sell signal to be given. With the short-term sell signal the index has now shown that the recent uptrend is over, or has at least stalled, and that further positive fundamental news is needed to re-start the uptrend.

The DOW now finds itself in a general 600 trading point range with 13000 as the midpoint and 12700 and 13300 being the bookends. The traders are unlikely to push the index above or below that trading range until further news comes out, be it economic or from earnings reports. The next 2 weeks will offer a substantial amount of earnings reports that could make a difference. Nonetheless, the problems with China's economy shrinking and the debt problems from Europe growing, the probabilities have started to shift toward a correction occurring.

On a weekly closing basis, resistance is minor at 12977 and decent between 13212 and 13232. On a daily closing basis, resistance is decent between 12986 and 13005 and strong between 13241 and 13264. On a weekly closing basis, support is decent at 12801. Below that level there is no support found until the 12000. On a daily closing basis, support is minor at 12780, minor again ad 12759 and decent at 12715.

The DOW has now built a clearly defined Head and Shoulders formation on the daily chart. The left shoulder is the high seen on February 29th at 13055, the heads are the highs seen on March 16th and April 2nd at 13289 and 13297, respectively (also considered a double top), and the right shoulder is Thursday's high at 12986. The necklines are the March 16th low at 12734 and Tuesday's low at 12710. The H&S formation, if broken (a drop below 12710) would offer a 12113 objective. It should be mentioned that the left shoulder took about 3 weeks to form and there are high probabilities that the right shoulder might take almost as long to form, mainly because it is unlikely that the traders will make a strong commitment in either direction until the first 3 weeks of the earnings quarter are over. Nonetheless, is should also be mentioned that with the H&S formed and Europe having a crisis that could explode "at any moment", any break at this time below 12700 would be a strong signal that the index is heading lower.

To the upside, the 13000 level (12970-13030) is now considered decent resistance, especially since the DOW closed on the highs of the day on Thursday at 12986 but no follow through was seen on Friday. The red close on Friday not only made the 12986 close a successful retest of that psychological level, as well as of the high close in February, but also of the 50-day MA which is always a line that plays an important part regarding trends.

The bulls now find themselves between a rock and a hard place inasmuch as they need earnings reports to be better than expected, as well as the problems in Europe abating in order to re-stimulate buying interest. If either of the two events fail to occur it is unlikely that there will be enough buying to cause the index to go higher. If both fail, the traders will have strong reasons to be aggressive sellers.

The big question this week is not whether the DOW has a chance to go higher but whether it will break now or wait a couple of weeks before breaking. The probabilities are high that the index is heading lower as the problems in Europe are not likely to abate any time soon and the earnings reports are also unlikely to be so much better than expected as to make an impact. Already the few reports that came out this week were better than expected but the market, and the stocks themselves, did not react to the reports in a major favorable manner.

The DOW closed on the lows of the day on Friday and the probabilities favor further follow through on Monday with 12743 as the day's objective. Nonetheless, Monday does have a couple of important economic reports with Retail Sales and Empire Manufacturing coming out before the market opens. On the earnings front, C reports Monday morning before the opening. Those reports could impact how the index trades on Monday, though it is highly unlikely that the index will breakout above or below the levels mentioned. If the reports come out as expected, it is probable the index will see a high around 12880 and a low around 12743.

Probabilities this coming week suggest that the index will continue to trade between 12700 and 13000 and close out the week slightly in the red with a close around 12810.

NASDAQ Friday closing price - 3011

The NASDAQ generated a second red close on the weekly chart suggesting that a top is now in place and that the index is in a corrective phase. A small sell signal was given on the daily chart but not the kind that yet signals a strong correction will occur. Nonetheless, the index did close near the lows of the week and on the lows of Friday's trading and if follow through to the downside is seen on Monday and the index closes below 2991, a strong sell signal will be given. The NASDAQ has ceded the leadership to the DOW having dropped more than 4% in the last 2 weeks with the DOW having dropped only 1.2%. The leadership being back among the Blue Chip stocks suggests that this is a correction and not just a pause in the uptrend.

The NASDAQ has held above the psychological support at 3000 likely meaning that the traders are not yet convinced totally that the indexes are heading lower. Nonetheless, having closed only 11 points above the 3000 level on Friday, the hold above the 3000 level is tenuous and dependant on positive news coming out this week.

On a weekly closing basis, decent resistance is found at 3091. Above that level, decent resistance is found at 3204. On a daily closing basis, minor to perhaps decent resistance is found at 3055 and decent to perhaps strong resistance is found at 3122. 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 decent at 2988/2991 and decent again at 2910.

The NASDAQ has built a possible top formation that has not yet been confirmed as a top, given that a strong sell signal has not yet been generated. Nonetheless, all the charts ingredients necessary are in place and the probabilities of some type of confirmation being given this coming week are high. The index shows a double top with a high on 3/27 at 3134 and a high on 4/3 at 3128 (3122 and 3119 on a daily closing basis. A successful retest of that double top was seen on Thursday with a rally up to 3059 and a red close on Friday. In addition, the index shows a breakaway gap between 3097 and 3086 on 4/4 and a runaway gap between 3061 and 3058 on 4/9. The runaway gap was tested successfully on Thursday with the rally up to 3059 and the red close below the previous day's low on Friday. All the formation needs to be confirmed is a break of Tuesday's low at 2987, which is turn would also be a break of the 50-day MA, currently at 3000, which in turn would also be a strong sell signal.

To the upside, if the bulls can generate a rally in the NASDAQ above 3059 and close the runaway gap, the breakaway gap would likely be closed and the formation built would be at risk of deteriorating. The index did close on the lows of the day on Friday and unless the economic reports on Monday prior to the opening are highly positive, the probabilities do favor the index breaking down.

It should be noted that below 2987 there is no support until 2900 is reached and even then that support is minor to decent at best. The chart does suggest that a retest of last year's high at 2887 is likely to occur at some point even within the context of the NASDAQ still being in a major bull-trend. As such, it can also be said that the probabilities favor such a scenario as the index is overbought and at 12-year highs and has not built the kind of support needed to generate further upside of consequence.

The probabilities favor the NASDAQ being in a short-term downtrend but it should be mentioned that several of the main stocks in the index, such as AAPL and PCLN, do not report until the following week and it is unlikely that the index will break down until those reports come out.

The 50-day MA at 3000 is an important line, and even more so since it is at what has to be considered a strong psychological support. It is evident the traders will be putting close attention to what the index does on Monday and take their cue for the week based on what happens on that level. It is important to note that it is unusual to find a breakaway/runaway gap formation to the downside in a strong uptrend without some major news having come out. The economic news that has come out is not yet confirmed as a major negative and therefore the gap formation is at risk of being negated. By the same token, if the index does break down this coming week and a strong sell signal is given it will be very difficult to negate the chart negatives before a retest of last year's high is seen and is successful. As such, Monday's action could be strongly indicative, at least as far as what the index does the rest of the week.

SPX Friday closing price - 1370

The SPX confirmed with a second red close in a row, as well as with a close on Friday below 1386, that it was unsuccessful in getting above the minor weekly high close seen in May08 at 1425. With the other indexes having been able to clear that hurdle weeks ago, it puts the index in a very negative light and suggests that a failure to follow through signal could be given this coming week that would thrust the index into a "strong" correction and open the possibility of a downtrend beginning.

The SPX finds itself in a fundamental Pandora's box that is mostly dependant on what happens with the European debt crisis which shows few signs of abating and has high probabilities that the end result will ultimately be negative. With that kind of doom scenario, which would affect the world's banking industry, the index is not likely to rally unless some miracle solution is found.

On a weekly closing basis, resistance is minor to decent at 1408 and decent at 1425. On a daily closing basis, there is minor to decent resistance at 1387 and at 1409/1416 and decent resistance at 1419. 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 1363 and decent to perhaps strong between 1268 and 1288.

The SPX is facing a critical week this coming week inasmuch as the last year's high at 1370 (1363 on a daily and weekly closing basis) was tested this week with a drop down to 1359. The index did close in the lower end of the week's trading range suggesting that further downside will be seen if no positive fundamental news comes out. Further downside with closes below 1363 will technically weaken the chart and likely cause strong selling to come in. The index does show one minor intra-week support at 1340 that is likely to hold the first time it is seen, but if that level is broken there is nothing to stop the index from falling down to the 1268/1288 level. As such, a close below 1363 could cause an additional 5% correction to occur.

The SPX will get 2 important earnings reports this week with GS reporting on Tuesday morning and BAC reporting on Thursday morning. Nonetheless, JPM and WFC reported on Friday and they were both better than expected and yet closed red on the day. As such, it is not expected that the remaining earnings reports in the financial industry will offer great hopes for the index to rebound to the upside.

To the downside, the SPX will be largely depending on the support at 1340 holding up. The probabilities are high that the level will be seen if only because lower lows than last week are expected to be seen this coming week. The Retail Sales number on Monday could change the outlook if the report is way out of line positively, but the probabilities of that happening are low. A break of 1340 would bring in strong technical selling but the probabilities are low of it happening unless the rest of the indexes are also breaking down, which is unlikely to happen this coming week.

To the upside, the SPX shows some decent resistance at Thursday's high at 1388. Above that level, there is no resistance until 1400 is reached and even then the resistance there is only minor. Stronger resistance will be found at 1414 and even stronger up at 1422/1425.

The SPX closed on the lows of the day on Friday and the first course of action on Monday is likely to be to the downside. Last week's low at 1357 is likely to be tested as early as Monday and if broken a drop down to 1340 would likely ensue. The index closed at 1358 on Thursday (below 1363) but the break was not confirmed when the index closed at 1370 on Friday. By the same token, if the index is able to close once again below 1363 the traders are likely to get negative on the index and if 2 closes in a row below that level are seen, the traders are likely to become aggressive sellers.

Probabilities favor the SPX being in a trading range for the next week between 1340 and 1370/1376. After that it will depend on the rest of the big earnings reports due out the following week, with AAPL leading the way.

The mood in the market is slowly but surely changing from bullish to short-term bearish. Technically, support levels that should have held if the indexes were to move higher have broken putting traders in a profit taking mode. In addition, a successful retest of the previous support levels (now resistance) was successful at the end of the week meaning that the burden of proof is now squarely on the shoulders of the bulls. Only an "overall" positive earnings quarter could open the door for bullish sentiment to come back.

One of the driving forces to the upside over the past few months was the hope that the Fed would inject further liquidity into the market in the way of a QE3 being done. Nonetheless, recent statements from Bernake and other Fed Governors have diminished those hopes down to nearly nothing meaning that prices of stocks and indexes are likely too high at this time and require further correction.

This coming week is not likely to show any "major" movement in either direction as traders are likely to wait until most of the major earnings reports come out (another 2-3 weeks). Nonetheless, if there are any surprises they will likely be to the downside inasmuch as there are several possibly negative events worldwide that could be triggered at any time causing selling panic. On the other side there are very few events, if any, that could trigger the opposite reaction. As such, the indexes seem to have a slightly bearish tone with potential for some event happening that causes the floor to collapse.