DOW Friday closing price - 13155

The DOW, after sideways action during the first 4 days of the week on continued worries about the Fiscal Cliff, was able to stretch its gains from the previous week when the Jobs report on Friday came out better than expected. The index closed on the highs of the week and above a minor weekly close resistance at 13115, as well as above the 50-day MA, currently at 13140, suggesting that further upside will be seen this coming week with the next resistance level not being found until 13275/13338 is reached.

The DOW outperformed all the other indexes this past week as the bulls seem to be targeting the security of Blue Chip stocks rather than oveall market. More of the same is expected to be seen this coming week and for as long as the uncertainty regarding the Fiscal Cliff continues.

On a weekly closing basis, resistance is decent between 13232 and 13276. On a daily closing basis, there is decent resistance between 13252 and 13276. On a weekly closing basis, support is minor at 12849 and at 12777 and decent at 12588. On a daily closing basis, support is minor at 12951, decent at 12878, decent again at 12710, and decent to strong at 12542.

The DOW has now generated 3 green weekly closes in a row and having broken the only resistance close-by at 13115 there are no reasons chart-wise that another green close next Friday won't be seen, perhaps as much as by 80-120 points. Weekly close resistance is decent to strong between 13232 and 13275 and the probabilities favor the bulls targeting that area for this coming week or at the latest the one after. By the same token, it is highly unlikely that the bulls will have any success in closing the index above that level until the Fiscal Cliff issue is resolved.

Support in the DOW will now be found between 12970/13000 which includes a previous intra-week low at 12978 as well as the 200-day MA, currently at 13000. Additional support is found at the 50-week MA, currently at 12945, as well as at 12923 which was Wednesday's low. Further and slightly stronger support is found between 12765 and 12778.

The probabilities favor the DOW moving up to the 13290/13338 level this coming week (likely by Tuesday), especially since there are no scheduled economic reports of consequence due out the first 2 days of the week and no likely resolution of the Fiscal Cliff issue as well. Nonetheless, Wednesday could be a pivotal day as the Federal Reserve will announce the results of its last policy meeting of the year and two key issues are expected to dominate the gathering and the market's attention -- the expiration of "Operation Twist" and a potential change in interest rate guidelines. With Operation Twist ending, that means they've run out of short-dated securities to sell in order to purchase more [longer-term securities], meaning they could decide to come up with another type of Twist program to compensate for the $40 billion per month of mortgage backed securities they are doing now, and on doing so in an unlimited time basis. As such, there is a good possibility that announcement will be made this week on Wednesday, which in turn could support the market fundamentally the rest of the week.

By the same token, worries about the Fiscal Cliff and the possibility of higher taxes in 2013 may act as the greatest incentive to sell both winners and losers by December 31. With liquidity usually an issue during the last 2 weeks of the year, there is a distinct possibility that after the Fed rate decision on Wednesday that selling will start (not wait until the last week of the year), creating the possibility that this week could have a big swing in price (up the first 2 days and down the last 3 days).

It should also be mentioned that there is a distinct possibility that the DOW has been in the process of building a bearish Head and Shoulders formation with the left shoulder being the high seen in April at 13338, the head being the double top high seen in Sep/Oct at 13361, and the right shoulder being whatever high is seen on this rally (probably 13338 or lower). The neckline is drawn using the low seen in June at 12035 and the low seen in November at 12471 and if that line is broken it would give an 11281 downside objective. The H&S formation has not yet been built so it cannot be said it is yet "in play", but fundamentally speaking events seem to be lining up for the right shoulder to be built as soon as this week as it is unlikely the index will continue higher above 13338 until the Fiscal Cliff is resolved.

It is impossible at this time to determine how the traders will react to the end result of the Fiscal Cliff issue. Nonetheless, what is highly probable is that the traders will continue to build the chart patterns necessary to make a fast and clear chart decision once the issue is resolved. What this means is that the Head & Shoulders formation will likely be built with the traders making the decision this week on where the high of the right shoulder will be. What would then follow is a drop that could be as low as 12500 (but not necessarily that low) to confirm the shoulder and then let the fundamental events decide what direction the index will go thereafter.

Probabilities do favor chart trading (within the parameters mentioned above) for the next few weeks with only tangible news about the Fiscal Cliff causing any unforseen movement.

NASDAQ Friday closing price - 2978

The NASDAQ had a negative reversal week after making a new 5-week high and then closing in the red and near the lows of the week. The index underperformed the other indexes mostly because its #1 stock (AAPL) fell strongly causing the index to fall. The red close made last week's close at 3010 into a successful retest of the psychologically important 3000 level. The red close also suggests that a bearish Head and Shoulders formation has been formed, at least on the weekly closing chart, with the left shoulder at 3091, the head at 3183, and the right shoulder at 3010. The neckline would be formed using the low seen in May at 2747 and the low seen in November at 2853.

The NASDAQ had an eventful negative week breaking below the 200-day MA on Wednesday, retesting the line on Thursday, and confirming the retest as successful on Friday with a red close. In addition, the index tested successfully the 50 and 100 day MA's this past week, currently at 3007 and 3024 respectively, as well as built a bearish double high formation using the high at 3033 seen on November 2nd and the high seen last Monday at 3030. The negative chart events seen this past week has put the index at "odds" with the other 2 indexes that ended up having positive chart weeks, suggesting that either the NASDAQ will bring the other indexes down this week or the other indexes will cause the NASDAQ to negate all the negative signals given. Probabilities slightly favor the downside but it is likely much will depend on what AAPL does this coming week.

On a weekly closing basis, there is minor to decent resistance at 3010 and at 3069, decent at 3091 and strong at 3179. On a daily closing basis, resistance is decent between 3012 and 3020, minor at 3044, minor to decent at 3122 and at 3149 and strong at 3183. On a weekly closing basis, support is minor at 2908 and decent to strong at 2853. On a daily closing basis, support is minor at 2988 and at 2973/2977, minor to decent at 2961 and decent at 2910.

The NASDAQ has clearly defined chart parameters that will likely be in play this week and that will help the traders decide on a direction for the rest of the month. If the double high at 3033/3030 (3020 on a daily closing basis) is broken any day this coming week, further upside to 3091/3134 will likely occur. By the same token, a break below 2946 (2961 on a daily closing basis) will likely cause the index to test the recent low at 2810. The probabilities favor the downside inasmuch as the index closed near the lows of the week and a break below the lows of the week at 2958 is likely to occur. In addition, AAPL also closed near the lows of the week and further downside is likely to be seen as well.

The selling of tech stocks this past week could be related to the liquidations of profitable as well as losing positions due to the tax increase to happen on January 1st. Tech stocks have been highly profitable this past year and it makes sense they would be the first to be sold. Tech stocks have also been largely responsible for much of the gains seen in the market this past year suggesting that the NASDAQ chart signals have a higher probability of being correct than the opposite ones being given in the other indexes. By the same token, the index could rally at the beginning of the week, much like what is anticipated in the other indexes, and still not break above the double high, meaning that both signals (up in the DOW and SPX and down in the NAZ) could happen.

Probabilities favor the NASDAQ heading "slightly" higher on Monday and Tuesday and then selling off the rest of the week.

SPX Friday closing price - 1418

The SPX was able to "eke out" another green weekly close but the rate of ascent has been diminishing for the past 2 weeks with the index closing on Friday 2 points above previous week's close and the previous week's close being only 5 points higher than the previous one before that. By the same token, the index did close on the highs of the week and further upside is expected to be seen this coming week suggesting the rally is likely to continue, at least above last week's high at 1423.

Nonetheless, it must be mentioned that on the daily chart the SPX does have a decent to strong intra-week resistance level close by at 1422/1423 and on the daily closing chart at 1419, meaning the index does not have any room to the upside to go higher without causing some technical damage to the bear cause. If the intra-week resistance is to hold up, it would likely mean no follow through would be seen and that the index will close in the red next Friday. This scenario is in contrast to what is being seen in the DOW but not in contrast with the NASDAQ.

On a weekly closing basis, resistance is minor at 1418, decent at 1425, and minor again at 1433. Above that level, decent to strong resistance is found between 1460 and 1465. On a daily closing basis, resistance is minor to decent at 1418/1419, minor at 1428, and decent to strong between 1460 and 1465. On a weekly closing basis, support is minor at 1406 and 1397, minor to decent at 1370, and decent at 1359. On a daily closing basis, support is minor at 1407, minor to decent at 1399, minor at 1392, and decent between 1353 and 1358.

The SPX was neither the leader nor the laggard this past week suggesting that the index lost some of its buying power this past week but not yet enough to cause the traders to think things are going south. To the upside, decent resistance in the SPX if found at 1423, minor at 1434 and then a bit stronger at 1440. To the downside, minor support at 1403, a bit stronger at 1398 and decent at 1385, which is also where the 200-day MA is presently located.

There is a good probability that in the first 30 minutes of trading on Monday that the SPX will give a clue as to what the traders will do the rest of the week, or at least until Wednesday. The 1423 level is critical on a short-term basis for the index and that is only 5 points above Friday's close. By the same token, if the smoke and mirrors are ignored and only chart trading is used, the index should be heading lower from here. There is too much resistance here from a lot of different aspects and that suggests that only "tangible" positive news will help the index higher.

Mixed signals are being given by the indexes and that makes for an unclear picture of what to expect this coming week. Nonetheless, there are some signs that the indexes will start higher at the beginning of the week with the DOW leading the way. News-wise, there are no scheduled economic reports of consequence the first 2 days of the week. Wednesday could be pivotal because of the expectations regarding what the Fed will announce as to a possible replacement for "Operation Twist" as well as from the only report of some consequence for the week in the form of Durable Goods.

The Fiscal Cliff will continue to generate a pall over the market that is not likely to go away even when resolved. In addition, the upcoming and likely irreversible change in the tax code will likely generate automatic selling of positions as the end of the year nears, suggesting that the Xmas rally will not be seen this year.

Expectations are for some minor strength at the beginning of the week but selling toward the end of the week.