DOW Friday closing price - 12720

The DOW had a strong week due to easing credit conditions in Europe and improving economic data out of the U.S. In addition, positive earnings reports on one of the stalwarts of the DOW (IBM), as well as a much lower number of Initial claims this past week (suggesting hiring is increasing) fueled speculation that growth this coming year will not be as slow as previously expected. The better outlook for the economy, the slight lowering of fears that Europe will implode, and the momentum the index has gathered since October set up the kind of situation were increased buying and decreased selling was seen this past week.

From a technical perspective, the DOW has now been able to generate 4 green close days in a row and 7 out of the last 9 since the earnings quarter began. On the weekly chart, the same pattern is repeated with 7 out of the last 9 weeks having been green. With another 2 strong weeks of earnings reports due out, further upside is expected to be seen this coming week. In addition, the index was also able to accomplish erasing all the losses of the last 6 months and put itself in a position where a new 44-month high could be made this coming week, though that is far from a given. Such an event, if it happens, could stimulate new buying and renew hopes that the market will go higher this year.

On a weekly closing basis, resistance is decent to strong at 12810 and again between 12980 and 13058. On a daily closing basis, resistance is decent to strong at 12724 and strong at 12810. On a weekly closing basis, support is minor at 12217, minor again at 11934 and decent between 11858 and 11866. On a daily closing basis, support is minor at 12422 and minor to perhaps decent between 12355 and 12359. Below that, minor support is found between 12150 and 12204, minor again at 11897 and minor to decent at 11766.

The DOW has a high probability of topping out, at least on a short-term basis, within the next 2-6 days. The overbought indicators, such as RSI and Slow Stochastic, have reached levels from which a correction usually begins within that period of time (70 RSI and above 97% SS). A good example of this can be found last April 26 when the RSI hit 70 and the Slow Stochastic hit 97 and the DOW was trading at 12595 on that date (April 26th) and 4 days later (May 2nd) from a high of 12876 began a 1000 point correction that lasted 6 weeks. It should be mentioned that the market usually has a correction every year that often starts around the end of January or beginning of February and that follows into the end of March. As such, there are several reasons to think the same might be happening now, especially with the overbought condition in existence. On Bloomberg TV on Saturday they had one of the highly respected technical analysts stating that he expected strength on Monday in the indexes and some follow through on Tuesday but that he believes the high made on Tuesday will be the top to this rally.

As far as resistance levels are concerned, the DOW closed on Friday at a decent one found between 12719 and 12724. Nonetheless, having closed on the highs of the day/week if there is any follow through on Monday (likely) that level of resistance will be broken and the traders will attempt to test the strong resistance at 12876 (12810 on a daily closing basis). Above that level, there is no resistance until the 13,000 demilitarized zone is reached. At that level there is a previous low resistance at 12980 and a previous high at 13050, both of some consequence, that helps determine the area the traders will shoot for if 12876 is broken. It is doubtful that more than those levels will be seen at this time as the economy is still not showing the kind of growth that would support more of a rally than that. because of that reason alone (limited upside objectives) the traders may not get as aggressive as needed to break the resistance at 12876.

To the downside the bulls do have some risk as there is no support of consequence found in the DOW until the 12,000 area is reached. There is some minor support in the 12300 to 12385 area but that is still some 400 points lower than Friday's close, meaning the traders are looking at more risk than profit potential buying at these prices. In addition, there is little reason to believe the support at 12300 will hold up well if there are any negatives that pop up. As such, traders are not likely to aggressive buyers making further upside limited and slow to be reached.

It should also be mentioned that Volume shot up on Friday to the highest level since December 16th. A spike in volume is usually a strong indicator that something of consequence is likely to occur in the next day or two. Most of the time it is a change of direction, but that is not always the case as there have been a 2 occasions this past year that the spike in volume has brought about a strong move in the same direction. Nonetheless, 10 out of the 12 spikes in volume, similar to the one seen on Friday, brought about a change of direction the next day or the one after. With the DOW overbought strongly the probabilities favor a change of direction.

Having closed at the 12719/12724 level on Friday, thus creating a triple high at that price, the probabilities strongly favor further upside on Monday. Two scenarios pop up in mind because of that situation with 1) a rally up to 12876 and a failure there, considering the index is expected to top out this week technically. Such a scenario would create a double top at that level that would become a major resistance or at least the next 6 months if not the rest of the year. This scenario is certainly a good possibility as the outlook for the economy for 2012 is not rosy as growth is not expected to be strong. In addition, the problems in Europe continue without a clear resolution and with more risk than possibilities of a good solution. As such, it is unlikely traders will be aggressive until a clear resolution of that situation is found. Under this scenario, a double top could be built and could mean the DOW would trade sideways the rest of the year with the caveat that if the problems in Europe are not resolved and that financial situation breaks that the index could fall. 2) the 12876 level is broken and the index continues up to 13,000 suggesting that the bull trend has resumed and that other than general peaks and valleys, further upside would be seen in 2012 after a correction to get rid of the overbought condition occurs. This last scenario is the least probable as there are still too many questions unanswered and it is unlikely the traders will become aggressive buyers until that occurs.

Expect some strength on Monday and perhaps a bit more on Tuesday and then the beginning of a correction.

NASDAQ Friday closing price - 2786

The NASDAQ once again took the reins of the market as it outperformed the other indexes this past week in spite of a negative earnings report on GOOG. This could be indicative as it was this index that led the market for the bull-run between 2008 and 2011. Having taken control of the market again suggests this rally could be for real. Further earnings reports on some of the big companies in the index, such as AAPL, will come out this week and if the NASDAQ is able to continue leading the market to the upside this coming week it could be indicative that the uptrend has resumed.

The NASDAQ was able to break the October resistance that has been broken by the DOW a few weeks ago and by the SPX the previous week putting the index on a possible run to test the 12-year high made earlier this year at 2887. There is very little resistance above until 2833 is reached and if the index rallies up to that level it will be in the neighborhood of the previous 8-year high from 2007 at 2861 as well as the 12-year high made in May at 2887, suggesting that any small positive hiccup could result in another new 12-year high and all the technical positives that go along with that. As such, the NASDAQ will be the index to watch this week for clues as to what the traders believe the near future holds in store for the market.

On a weekly closing basis, resistance is decent at 2833 and at 2858 and strong at 2873. On a daily closing basis, resistance is minor to decent at 2799 and decent at 2833. Strong resistance is found between 2858 and 2873. On a weekly closing basis, support is minor to decent between 2605 and 2616. On a daily closing basis, support is minor at 2763 and at 2737, minor between 2710 and 2722, and decent between 2596 and 2606.

The NASDAQ did not perform on Friday as well as it did the rest of the week due to a negative earnings report on GOOG on Thursday that caused the stock to drop about 8% in value. Nonetheless, the red close was minimal and chart-wise did not suggest that further downside will be seen this coming week. With the negative news built in to the price the index closed at on Friday, the probabilities still favor upside on Monday and an attempt to get back up to the levels of strong resistance that have beset the index for the last decade.

Fundamentally speaking, it doesn't seem that the NASDAQ is yet ready to make another 12-year high as the growth factor for the economy this year continues to be low. GDP growth of 3% or less is not likely enough to generate the kind of buying that would take stocks already at high levels of price to go even further more to the upside. Technically speaking the previous 8 and 12 year highs at 2861 and 2887 will require much more backing and filling, close by support building, and power buying to be broken, none of which is present at this time. As such, you are looking at an index that is likely to falter, perhaps even strongly, once it reaches up into the 2833 to 2858 level, if it gets that high. Some minor to decent resistance will be found at 2798/2799 that in conjunction with the psychological resistance at 2800 will likely give the bulls problems. As such, you are looking at an index that will likely go up another 14 to as much as 50 points this week but will find strong selling all the way there.

Support of consequence is almost non-existing in the NASDAQ until the 2600/2616 level is reached and that is almost 190 points to the downside. There are minor supports from April, May, and July between 2700 and 2748 but they are not recent and not likely to offer enough support if the index fails here and breaks down. As such, traders are looking at a big negative risk/reward ratio that will also make then leery of buying aggressively unless the index undergoes a 4-8 weeks backing and filling scenario.

Probabilities favor further upside on Monday, with at least 2799 being reached, and then a possible correction starting that would take the index back down to 2600 by the end of March. Earnings reports on AAPL, AMZN, and NFLX may make a difference but it is difficult to imagine these companies reporting major beats on their numbers, and therefore not giving the bull traders enough ammunition to overcome the major obstacles ahead.

SPX Friday closing price - 1314

The SPX had its week in the spotlight with a large portion of financial stocks reporting this past week. The reports generally speaking were better than anticipated but there were no major positive surprises meaning that the financial companies continue to recover but are not yet making the kind of strides needed for strong growth to be seen.

The SPX did get above the 1300 psychological resistance rather easily and seems to be on its way to the next resistance area of consequence between 1333 and 1343. Nonetheless, at this point the index is likely to once again take a back seat to the DOW and the NASDAQ as it is there where growth, if any of consequence, is likely to be seen.

On a weekly closing basis, resistance is decent at 1343 and strong at 1363. On a daily closing basis, resistance is minor at 1330, decent at 1343/1345, and decent at 1353. Strong resistance is found at 1363. On a weekly closing basis, support is decent at 1268, minor at 1257, and decent again between 1216 and 1219. On a daily closing basis, support is minor to decent at 1305/1306, very minor at 1289 and the nothing until decent support is found between 1249 and 1256.

The SPX closed on the highs of the week and further upside is likely to be seen starting the weekend. No resistance is found until 1333 so if there is no negative news from Europe over the weekend the probabilities of the index getting to that level on Monday are high. The important resistance is actually at 1343, which has been not only a decent resistance for the past 12 months but a pivot point as well. It is possible the index will get up to 1333 on Monday and then up to 1343 on Tuesday. Nonetheless, for the index to close above 1343 any day this week some major positive surprises will need to happen. It is unlikely they will.

It should be noted that the bulls are now committed to closing the SPX at least at 1327/1330 one day this week, but most probably at 1340. If that does not happen and the index closes below 1305, the "gig is over". Simply stated, the chart says that any failure at this point, defined by a daily close below 1305 or in intra-week drop below 1294, will signal no further upside for the short term. As such, the bulls need to find ways to keep the index moving higher as the technicals are now strongly in play.

The 1249/1258 level in the SPX is now important support on the weekly chart. Any break of that level will be negative, perhaps even decisively so.

With the recent break of resistance levels, the bulls are now committed to taking the indexes higher, at least up to the next resistance levels. Any failure to do at this time so will be technically negative. Questions as to the future of the indexes for 2012 are still hovering around and will not likely be resolved until something fundamentally stronger and more well-defined comes out of Europe regarding their possible default problems. Without that kind of resolution it seems impossible that the indexes will be successful in breaking these resistances that are not only strong but have been in place for a year. As such, it can be said the market may be near levels right now that could be the highs of the year.

Earnings reports have been mostly successful in maintaining the rally but up to now there have not been any reports that were overwhelmingly better than expected to stimulate much further upside. The important reports will be mostly out by the end of next week but probably the most important of all is AAPL which comes out on Tuesday after the market close. The report will be closely scrutinized this time around, probably more so than at any other time for several reasons 1) the stock is into new all-time highs 2) the last report was disappointing compared to all the other reports when Steve Jobs was around 3) Comparisons to the Steve Jobs era and the new CEO are likely to be made in this report and could impact how the company is viewed in the future.

This coming week the new GDP Adv report will be coming out and the expectations are for a sharp increase from the last report at 1.8% to 3.1%, which is also the number that is expected for GDP for the entire year. Any disappointment in the report will likely mar the rosy picture that is being seen in the recent market action and cause the traders to re-evaluate the market downward. By the same token, a higher number than 3.1% could be a major catalyst generating thoughts that the economy is growing better than what is presently being mentioned and that could bring the kind of buying that is needed to generate the next leg up in the uptrend. As such, from a technical as well as fundamental perspective, this week is very important.