DOW Friday closing price - 12217

The DOW closed out the year with a whimper leaving questions unanswered as to what the future brings. The index was able to eke out a small 5.5% gain for the year but that was mainly due to investors preferring the security of Blue Chip stocks and not because the overall market had the same results (other indexes were unchanged or down). Traders will be coming back for the New Year without a strong idea of what will happen in 2012 and will wait to make a decision on direction until the next set or earnings and economic reports come out, as well as a clearer picture of how the financial problems in Europe will be resolved.

The bulls were unable to finish the year with a positive statement as the DOW closed in the red on Friday (below the previous week's 5-month weekly closing high at 12231) giving a small failure to follow through signal that suggests the New Year will start on a negative note. By the same token, the index did close near the highs of the month and is on a 3-month rally that has not yet shown signs of ending. Higher highs than December (12328) should be seen at some point in January.

On a weekly closing basis, resistance is minor to decent at 12391, decent at 12682 and decent to strong at 12810. On a daily closing basis, resistance is minor at 12297, decent between 12391 and 12345, minor at 12569, decent to strong at 12724 and strong at 12810. On a weekly closing basis, support is minor at 11934 and decent between 11858 and 11866. On a daily closing basis, support is minor at 12140, minor again at 11897 and minor to decent at 11766.

It should be mentioned that the DOW chart is showing a bullish flag formation that has been built in the last 2 weeks with the flagpole being the rally from 11735 up to 12328 and the flag being the trading range seen last week between 12140 and 12328. A break of the flag above 12328 gives an objective of 12733. With very little trader participation seen last week it is difficult to have a lot of confidence in the flag formation but it is interesting to note that the week starts off with the ISM Index report coming out on Tuesday at 10:00am. The report is without a doubt one of the stronger reports that the traders look at and if it comes in a lot better than anticipated the bulls could use that as a spring board to get something happening for the New Year from the get-go, especially since participation should still be scanty next week. The DOW does have quite a bit of resistance between 12393 and 12450 which should put a stop to the rally if the report is not much better than expected, nonetheless above 12450 there is no resistance until a double top between 12719/12724 is reached, which does make reaching the flag formation objective possible.

To the downside the DOW does not have a lot of support until the 200-day MA, currently at 11945, is reached. In addition to the 200-day MA, the 50-day MA is currently just below at 11930 and both of those lines are unlikely to get broken until something negative happens, especially since the index has been able to establish itself "above the lines" in the last 2 weeks. A close below both of those lines, though, would bring into view the minor to decent intra-week support at 11862 which if broken would cause the bears to shoot for a break of the low seen 2 weeks ago at 11735.

The probabilities favor further but slight upside for the next couple of weeks as there have been no chart negatives generated in the last 2 weeks. By the same token, traders are not likely to be aggressive in either direction until the bulk of the earnings reports are out and more information about the European bailout of the banks is given. AA kicks off the earnings report quarter after the close on January 9th, so another week of general uncertainty is likely to be seen. It should be mentioned, though, that the seasonal tendency suggests a small corrective phase will start around the end of January and carry through to March, at which time another run to the upside would be seen.

With such an important report coming out on Tuesday just 30 minutes after the opening, as well as the small failure to follow through signal given on Friday, it is impossible to ascertain what kind of mood the traders will be in next week. It is evident that a break above 12328 will likely move the index up about 100 points and that a break below 12140 will likely move the index down anywhere from 100-200 points, but other than those parameters it is still a guessing game until more information comes out.

NASDAQ Friday closing price - 2605

The NASDAQ ended up having a negative year inasmuch as it closed 4% below the close seen one year ago. The index failed to continue the strong rally this year that started in 2009 in which it lead the market convincingly to the upside, suggesting that stocks in general have reached their peaks in value and that further upside will not occur unless the financial and economic picture gets better worldwide. This was certainly evident by the close on Friday where the index generated a second red monthly close in a row and closed at or near what was a major pivot point in 2011 at the 2600 level, suggesting that whatever direction is chosen in January could be the direction for 2012.

The NASDAQ did generate 2 inside months in a row giving a clear signal that the traders are completely uncertain as to what direction the index will go in 2012. Nonetheless, October was a major reversal month having seen a high at 2753 and a low at 2298 and those 2 prices have now become highly significant as a break of either of those levels in January will likely be a clear signal to the traders of what will happen to the market in 2012.

On a weekly closing basis, resistance is decent at 2646, minor to decent at 2706/2707, and decent to strong at 2737. On a daily closing basis, resistance is very minor at 2625, minor at 2655, minor to decent at 2667, decent at 2687, and strong between 2727 and 2738. On a weekly closing basis, support is minor at 2555, decent at 2441 and at 2415 and strong at 2341. On a daily closing basis, support is minor to decent between 2596 and 2606, minor at 2539 and minor to decent at 2518.

The NASDAQ's close on Friday was an uneventful as it can get as the index closed within a daily close trading range between 2596 and 2626 that has been considered a major demilitarized zone for the year. Traders await new news on the European financial crisis as well as the first couple of weeks of the earnings quarter to decide fundamentally what direction to go. By the same token, the monthly closing chart is now set up to give a strong buy or sell signal if the index closes January above 2684 or below 2415. Those are the 2 levels the traders will key on for this coming month.

On a shorter term basis (first couple of weeks in January), resistance of consequence is found at 2674 and support of consequence at 2518. Having closed just about in the middle on Friday, it does become a flip of a coin as to what the NASDAQ will do next week, probably pivoting mostly on how the ISM Index comes out at 10:00am on Tuesday.

SPX Friday closing price - 1257

The SPX ended up the year at unchanged having closed out 2010 at 1257. The lack of direction is certainly indicative of a market that is unresolved fundamentally and that needs something definitive to happen before traders will jump aboard with conviction, in either direction.

The SPX is still in a monthly uptrend in which the 200-month MA, currently at 1120, has been tested twice successfully since the index broke above the line in Aug09. The last successful retest was in October when the index got slightly below the line but then turned around to have an impressive reversal month suggesting the up-trend would continue. No signal has yet been given on the monthly chart that the trend has turned around but October's high and low at 1292 and 1074 are now considered the chart points where traders will make a major decision for 2012 as far as the trend is concerned. A break above 1292 would likely cause the uptrend to resume while a break below 1074 would do just the opposite.

On a weekly closing basis, resistance is minor to decent at 1268 and decent at 1285. On a daily closing basis, resistance is minor at 1265 and at 1275 and decent to strong at 1285. On a weekly closing basis, support is minor at 1219, decent at 1158 and at 1131 and decent to strong at 1123. On a daily closing basis, support is minor to decent at between 1249 and 1256 and minor to decent again between 1212 and 1218. Below that, no support is found until decent support at 1158.

The SPX has been trying to establish itself above the 200-day MA, currently at 1260, for the last 5 months but other than very short 1 to 2 days rallies above the line has been unable to do so. For the past 5 months no previous daily close above the line has yet been broken which actually makes last Tuesday's close at 1265 important for this coming week. A daily close above 1265 would likely be a signal to the traders that the index has made some chart inroads to the upside and that the trend to the upside will resume.

By the same token, the SPX has also had 2 inside months in a row, like the NASDAQ, and the low last month was on the 100-month MA, currently at 1200, suggesting that if December's low at 1202 is broken that a drop down to the 200-week MA at 1120 will occur.

The SPX did close in the green and near the highs of the month and that suggests the probabilities favor the upside and a break above last month's high at 1269. As such, the index does hold a strong clue as to what the indexes are likely to do for the short term as it is the one index that does have some important long-term implications close-by. A daily close above 1265 would be a positive while a break above 1292 would be a clear signal that the uptrend has resumed.

With the SPX having been the anchor dragging the market down on those periods where weakness was seen, it is befitting that it might now become the guiding light to the upside, should the fundamentals call for such action.

It can be said the indexes spun their wheels in 2011 as they all closed very near to the 2010 closes. The action for the year was clearly defined inasmuch as rallies were sold and dips were bought but no long-term trend emerged. Fundamentally the probabilities favor more of the same for this coming year as the economy of the world is not expected to improve very much, but then again growth, albeit slowly, is occurring and that favors some upside in 2012. On the other side of the coin, the financial ills in Europe will continue to be a major catalyst that threatens the market with a collapse or with additional growth depending on how the ECB handles the crisis. Unfortunately that is not something that is likely to be completely evident for weeks and/or months to come.

Nonetheless, it is evident that traders and investors are leaning toward purchasing stocks as valuations are at historic lows and other investment vehicles such as commodities are at historic highs. In addition, investment vehicles such as Bond and interest rate purchases have either become too risky or too low in price to be worthwhile doing. Simply stated, investors are starting to put their fears of a market collapse aside for the simple reason they need to put their money at work.

The market is very fragile and strong dips and rallies are likely to continue in 2012. Sideways trading will continue to be the most likely scenario but unless some catastrophe befalls the market, stocks should continue to inch higher at this time.