DOW Friday closing price - 13437

The DOW generated a second red weekly close in a row and near the lows of the week suggesting that further downside is yet to be seen this coming week. The index got down as low as 13367 which is near the previous 54-month intra-week high seen in May at 13338 but the weekly close was nowhere near the previous weekly low close at 13276 also suggesting that another leg down is yet to come as the probabilities are high that the previous high close will be tested at some point with a weekly close near the same level.

The DOW is still in a well-defined uptrend that suggests further upside is yet to come in the near future but is facing a lot of uncertainly going into the elections (just 4 weeks away) as well as economic news that continues to disappoint, making it difficult for the traders to be aggressive buyers at this time.

On a weekly closing basis, resistance is minor to decent at 13593 and minor to decent at 13625, decent at 13907 and major at 14093. On a daily closing basis, there is minor to decent resistance at 13593/13596. On a weekly closing basis, support is minor to decent at 13090, minor at 12922, and minor to decent at 12849. On a daily closing basis, support is minor at 13413, minor to decent at 13090, minor at 13046/13057, and minor to decent again at 13000.

The DOW has given several negative chart signals over the past 2 weeks starting with a confirmed double top on the intra-week chart at 13653/13647 (13593 and 13596 on the daily closing chart) and a mini sell signal on the daily closing chart when the index closed below 13557. In addition, the index did have a green close day on Thursday with a high at 13522 that can be interpreted as a successful retest of the double top, especially since a new 2-week low and a red close was seen on Friday. Technically speaking, these signals all suggest further downside action until the previous high is reached or a positive fundamental news item comes out.

To the downside, the DOW will start finding support at the previous high at the 13300 level which is further strengthened with the fact the 13300 is also a minor general support (300 points above and below a major even level such as 13000). In addition, the index does show a previous minor low at 13251 seen 3 weeks ago that will also aid the traders in buying near that level. Below that level, though, there is no support until the 13000 level is reached.

The chart does suggest that at the very least the DOW will be getting down to the 13250-13000 level before technical buying reappears. Nonetheless, this coming week does have some catalytic reports due out (ISM Index and Jobs Report) that could change the fundamental outlook. On the other side of the coin, economic reports have consistently been coming out worse than expected and there is no reason to think the reports this week will be different. As such, the big question is more about how low the index will move down to if the reports are negative than whether new buying of consequence will be seen if the reports are positive. One thing that the traders are faced with no matter how the reports come out is the Fiscal Cliff that comes out in December and January which will not be addressed until the election results are known. As such, the bulls have more to fear out of the reports than the bears do.

The DOW rallied on Thursday and then staged a mini rally from the lows on Friday but that was likely due to the end of the month/quarter window dressing which will not be a factor at the beginning of the month on Monday. The probabilities are high that the index will open lower on Monday and wait for the ISM index report to come out at 10:00am that day. If the ISM index report comes in as expected at 49.7% or lower, the traders are likely to push the index down to the 13300 support and see if the expected buying at that price will be seen. Barring any fundamental surprises over the weekend or on Monday morning in the ISM index report, the DOW is likely to see 13300 on Monday or Tuesday at the latest.

NASDAQ Friday closing price - 3116

The NASDAQ had a moderate down week having closed 2% below last week's close. Nonetheless, in spite of the down action the index managed to close above the previous 13-year weekly high close at 3091 on Friday even though on an intra-week basis the index did trade below that level with an intra-week low at 3080. The index did rally to close 25 points above the previous weekly high close and that has to be considered a sign that the traders are not yet ready to give a failure to follow through signal. Nonetheless, it does leave the door open for the index to have another down week this coming week, as is expected in all the indexes, and close next Friday lower (around the 3091 level) and still leave the door open for the uptrend to resume thereafter.

By the same token, the NASDAQ gapped down on Monday and attempted to close the gap unsuccessfully on Tuesday and having gotten up near the 3205 area of resistance the previous week with a rally up to 3195 and built what is now a double top on the intra-week chart, it can be said that the there is a good possibility the index has in fact found a top, albeit possibly a temporary one. If a runaway gap is seen shortly it would confirm the top and the traders would likely become aggressive sellers, if only on a short to mid-term basis.

On a weekly closing basis, there is minor resistance at 3183 and minor to decent at 3205. On a daily closing basis, resistance is minor at 3136 and minor to decent at 3183/3182. On a weekly closing basis, support is minor at 2908 and minor to decent at 2778. On a daily closing basis, support is minor at 3104 and again at 3093, minor to perhaps decent at 3048/3053, and minor to decent between 2976 and 2991.

The chart formations in the NASDAQ (double top, gap, and a haphazard Head & Shoulders) has a lot of negative possibilities suggesting that a drop below 3000, perhaps as low as the 200-day MA, currently at 2940, could be seen over the next 4-8 weeks. Nonetheless, until the index closes convincingly below the 50-day MA, currently at 3050, they are only possibilities and not probabilities. By the same token, there seems to be little in the way of fundamental help at this time to cause the index to rally so the possibility number is decent.

To the upside, the gap in the NASDAQ between 3178 and 3176 must be considered decent resistance if only because the gap was followed by a reversal spike down move of 60 points that would require some strong positive fundamental news to negate. In addition, the bulls tried to generate a rally on Thursday with a decent green close near the highs of the day at 3142 but then failed to follow through on Friday closing in the red and near the lows of the day suggesting that the 3142 high will also act as minor to decent resistance. A start to the week should be in the red.

To the downside, the NASDAQ does show some minor support at 3099 and then a bit stronger at last week's low at 3080 that was not expected to stop the downward action but did. Stronger support is found at 3040/3042 that also includes the 50-day MA which currently is found at 3050. The 50-day MA is normally considered a line that defines whether an index or a stock is still in an uptrend. A confirmed break of that line usually means the index is trading sideways. The NASDAQ is the index closest to the 50-day MA so it is the index the traders are likely to be watching closely.

It should be mentioned that on the weekly chart the NASDAQ has short-term indicative support at 2978 that is broken would likely cause the index to drop down to the 50-week MA, currently at 2715. The index did close near the lows of the week and probabilities do favor follow through to the downside below the week's low at 3080. Whether the index gets all the way down to the 2978-3000 support will likely depend on how the ISM Index and Jobs report comes out this week.

SPX Friday closing price - 1440

The SPX had a second red close week suggesting that the index is on its way to retest the 1420-1425 weekly close breakout area that gave the index so much trouble over the past 6 months. The index closed near the lows of the week and further downside is expected to be seen with the 1400 level as a possible intra-week objective. It should be mentioned that the SPX has not seen any kind of correction for the past 4 months and having failed to reach the 1500 level on the breakout above 1440 the probabilities favor one occurring now.

The SPX closed near the lows of the week and follow through to the downside is probable if the ISM index on Monday is not much better than expected. With no intra-week support until 1406 is reached and having had a 33 point trading range this past week getting down to 1406 is not only possible but probable.

On a weekly closing basis, resistance is minor at 1465, minor to perhaps decent at 1504, decent to strong at 1552, and major at 1561. On a daily closing basis, resistance is minor at 1447 and decent at 1465. 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 1433 and minor to decent at 1399/1402. Below that level, minor but indicative support is found at 1363/1366, minor to decent at 1358, minor to decent again at 1343 and at 1334.

As stated on the two previous newsletters, the SPX found some old resistance around the 1474/1478 level having rallied up to 1474 three weeks ago but unable to garner any new buying interest at that level. Last week's 33 point trading range was the strongest move down in 15 weeks and suggests that traders are more interested in taking profits at these levels than rallying the index further. That may change this week if the economic reports due out are positive. By the same token, it is not expected that the reports will be good so the probabilities favor further downside.

Resistance in the SPX will be found at Thursday's high of 1450 but it needs to be mentioned that the index had an inside day on Friday meaning that the resistance at 1450 is minor at best. Stronger resistance will be found at 1463 due to the fact that high generated a reversal day on Tuesday and technically speaking that reversal was a sign that there is decent selling found there. That level of resistance is further strengthened by the fact that 1465 is now considered a decent daily and weekly close resistance as that has been the high close for the last 57 months.

To the downside, the SPX will find minor support at 1433 as that was the low daily close this past week. Below that, there is little support until the previous high daily close for the last year at 1419 is found. That level is further strengthened by the 50-day MA that is currently at 1415. Nonetheless, on an intra-week basis, below 1430 there is no support until 1397-1400 is reached. With 1400 being a psychological magnet, if the index gets below 1430, the probabilities will be decent the index will get down to 1400 at some point.

If there are no positive surprises from the economic reports this coming week, the chart suggests that at the very minimum the index will get down to somewhere between 1424 and 1428, but the 50-day MA will be a magnet, especially if the reports come in as anticipated or worse. In addition, if all the important reports this week do not come in better than anticipated, the traders will have few reasons to be buyers due to the election in November and Fiscal cliff in December. As such, the bulls will likely be using this week as a gauge of what the index is likely to do for the next 4-8 weeks.

The indexes continued to show weakness this past week and the probabilities favor that a correction is occurring. By the same token, the most important economic reports that come out monthly are due to be seen this coming week, making this week a likely pivotal week for the traders. The reports are all due to come in slightly worse than last month and if that does occur there won't be any reasons for the bulls to buy.

The ISM index report is due out on Monday at 10:00am and the Jobs report is due out on Friday at 8:30 am. The ISM index is due to come out at 49.7, which is below the median at 50, meaning that the economy is retracting and on the road to a recession. The Jobs report is support to tick higher at 8.2% (last month it was 8.1%) and the non-farm payrolls is due to come out at 120k, which is higher than last month's 96k but still below the level of +150k that has been considered should be seen monthly.

The situation in Europe continues to be a joker in this poker game due to the fact that Spain and Italy are seeing their bond rates begin to climb above 6% again and austerity measures need to be put in place so that those countries can receive help from the ECB. What makes matters worse is that if Spain does request help from the ECB, it would make helping Italy that much more difficult (perhaps impossible). As such, the situation in Europe must also be considered pivotal to what the market does.