DOW Friday closing price - 13135

The DOW generated a reversal week making a new 8-week high and then closing in the red and near the lows of the week suggesting that further downside will be seen this coming week. In addition, the index reached its intra-week upward objective and decent to strong resistance area at 13338 with a rally up to 13329 followed by 3 red daily closes, also suggesting that the top to this rally might have been found. With the important resistance level successfully tested and no intra-week support until 13000 is reached, confirmation of the reversal is likely to occur if no compromise between the Republicans and Democrats regarding the Fiscal Cliff is found (unlikely).

More importantly and from a purely technical perspective, the red close on Friday has built a bearish Head & Shoulders formation (mentioned in the newsletter last week) that will put the technical traders into a bearish mode. Based on a daily closing basis, the left shoulder is 13232, the Head is at 13610, and the right shoulder was the previous week's close at 13155. The neckline is down at 12588 (12471 on an intra-week basis). It should be mentioned, though, that the red close on Friday was not decisive as it was by only 20 points below the previous week's close (13155), meaning that the H&S formation cannot yet be depended on and will need to be confirmed this coming Friday with another red close before the technical traders jump in aggressively.

On a weekly closing basis, resistance is minor at 13155 and decent between 13232 and 13276. On a daily closing basis, there is decent to strong resistance between 13232 and 13276. On a weekly closing basis, support is very minor at 13080/13090, minor at 12849 and at 12777 and decent at 12588. On a daily closing basis, support is minor at 13077, and minor to perhaps decent at the 13000 demilitarized zone (12970/13030). Further minor support is found at 12951, decent at 12878, decent again at 12710, and decent to strong at 12542.

The red daily close at 13248 seen in the DOW on Tuesday, followed by 3 additional red closes the rest of the week, has built a powerful resistance area between 13232 and 13276 that is going to need positive fundamental news to break. In addition, it needs to be mentioned that the resistance area spans a total of 8 months and has been tested successfully "repeatedly" meaning that chart-wise it will not be broken without fundamental help. The momentum the bulls had been able to garner since the 12417 low seen on November 16th and the following 912 point move up disappeared when the resistance area was reached. More importantly, there wasn't any specific negative news this past week to stop the rally, meaning that it was all technical in nature giving the chart additional strength to stop any further technical rallies unless there is a change in fundamentals.

The reversal on the weekly chart in the DOW does suggest the index will get back down to at least the 50-week MA, currently at 12970. There is a minor intra-week support level at 12977 from a low seen in September that gives the area a bit more strength. Nonetheless, the 50-week MA has been broken repeatedly since it was first broken to the upside 3 years ago suggesting the line will not carry all that much strength. In addition, the 12977 intra-week support is really very minor also suggesting that without fundamental help neither of these levels will hold up. A bit stronger intra-week support is found between 12710 and 12734 but having broken that level quite easily 5 weeks ago when the index got down to 12741, it is unlikely that it will offer much support this time around.

As such, if no fundamental help comes out, the downside objective of this move down is likely to be the 100-week MA, currently at 12475. The 100-week MA held the last time around when the index dropped down to 12471 and has held several times in past years, making it a very viable downside objective for the bears. Is should also be mentioned that the line is also where the neckline of the H&S formation is currently at.

On a very short-term basis, the 50-day MA is currently at 13110 and there is some minor daily close support at 13077, meaning that the first course of action for the bears on Monday should be to break those 2 levels intra-day and more importantly on the close. If the bears are unsuccessful in doing that "on Monday" the chart situation could change.

To the upside, the DOW shows no resistance of consequence on the daily chart until the decent to strong resistance up around 13300 is reached. Nonetheless, the 60-minute chart does show some resistance at 13200/13205 that stopped the index Friday afternoon and should remain resistance on Monday. Nonetheless, if the bulls are able to get the index above 13210, the negative mood generated at the end of the week will change and a new attempt to break the strong resistance above will occur.

The DOW will likely open under selling pressure on Monday due to the close on the lows of the week. The Empire Manufacturing report comes out Monday morning before the opening bell but the report is not considered important, especially under the present circumstances, so it should not have any kind of a positive impact unless it comes out substantially better than anticipated. Expect the index to trade between 13075 and 13175 for the first few hours of the day, if not for most of the day, but the close on Monday will be important on a short-term basis as the bears need to close the index below the 50-day MA at 13110 or they will give the bulls some ammunition for Tuesday.

This coming week is the week before Xmas and many of the traders will be leaving for the holiday period suggesting that the trading will become slow and generally unmoving. As such, it is important for both the bulls and the bears to set the tone early in the week. I do expect the traders will lean toward getting on the sidelines (liquidations) and that means the downside offers the higher probability numbers.

NASDAQ Friday closing price - 2971

The NASDAQ had a "second" negative reversal week in a row after going above the previous week's high at 3033 with a rally up to 3035 and then closing in the red, below last week's close at 2978 and on the lows of the week, suggesting once again that further downside will be seen this coming week. The same thing happened last week but no follow through to the downside was seen, likely because the traders were waiting for positive news from the Fed, which they did get on Wednesday. This coming week will likely be different inasmuch as the Fed will no longer be a reason to "buck the trend".

The NASDAQ has been definitely underperforming the other indexes starting with the fact that the bulls were unable to break the "minor" resistance level at 3033 for the past 3 weeks and go up to the March highs at 3134, like both the DOW and the SPX did this past week. The failure to "lead" the market up as it has done for the past 4 years, suggests that traders are generally pessimistic about the future and that long-term profit taking is occurring.

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 3022, 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 to decent at 2961 and decent at 2910.

The NASDAQ gave a sell signal on Friday when it closed below the most recent low close at 2973. The break was only by 2 points and that means it was not decisive and will need to be confirmed Monday with another red daily close, but the fact is that the index has been unable to break the minor resistance at 3033 for the past 12 trading days, in spite of having upside momentum and repeated attempts at breaking the resistance, and with no scheduled economic reports that could help this coming week the probabilities strongly favor the index testing the supports below.

A short-term critical intra-week support is found at the low seen on November 28th at 2936. The reason why it is critical is that it represents the successful retest of the runaway gap between 2928 and 2940 that was generated on November 23rd. A break of that support will likely cause the breakaway gap between 2859 and 2884 to be closed as well. A drop down to that level will also put the NASDAQ at strong risk of breaking the neckline at 2853 (weekly close) of the Head & Shoulders formation that has been built. Simply stated, a break below 2936 could have a domino-like effect that could end up being technically damaging causing the index to drop down to 2853.

On an additional negative note, the NASDAQ closed on Friday decisively below the 200-day MA, currently at 2990, and having closed on the low of the day/week further downside is likely to be seen on Monday. If another red close, or even a green close but below 2990 occurs, it would suggests the short-term trend is not only broken but that a short-term downtrend has begun. It should also be mentioned that the 50-day MA is about to cross below the 200-day MA and that has not occurred in the past 12 months, making the next couple of weeks critical and pivotal. The only way the cross of the MA lines can be prevented is with the index rallying strongly above the 3035 high seen this past week.

Resistance in the NASDAQ is clearly defined with the 200-day MA at 2990 and the psychological resistance at 3000 being paramount. Above that level the 3033/3035 level is now considered decent and likely indicative resistance as well.

Probabilities favor the downside this coming week.

SPX Friday closing price - 1418

The SPX had a reversal week having made a new 9-week high and then closing in the red and on the lows of the week. Further downside is expected to be seen with no intra-week support found on the weekly chart until 1397/1403 is reached. The index was able to break above the March intra-week high resistance at 1422 but stopped short of the important May08 high at 1440 with a rally this past week to 1339. The red weekly close in the SPX means that the previous week's close at 1418 is now considered the second successful retest of the 5-year high weekly close at 1465.

The SPX is still outperforming the other indexes having closed above the March high weekly close at 1408 4 weeks ago and not yet negating that small breakout. Nonetheless, like with the other 2 indexes, the red close on Friday has also now built the right shoulder of a bearish Head & Shoulders formation suggesting that if confirmed next week with another red close and below 1408, that the neckline down at 1359 will be tested.

On a weekly closing basis, resistance is minor to decent 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, decent to perhaps strong 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 has now built a very strong resistance level on a daily closing basis at 1428. The index closed at that level on Wednesday, followed by 2 red closes in a row. The reason that level has become a strong and important resistance is that a double top now exists there using the same 1428 close seen on November 6th. The level is further strengthened by an important low close on October 12 at 1428 that when broken caused the index to drop down to 1334. As such, it is evident that without some strong positive fundamental help that 1428 (based on a daily close) has become important and strong resistance and likely impossible to break without fundamental help.

To the downside, the SPX shows decent intra-week support between 1397 and 1403 but if broken the index will likely drop back down to the 200-day MA, currently at 1388. That line is quite important as it does represent the mid-term trend but it is even more important due to the fact that the index dropped down to that line on November 28th and bounced off of it strongly. A second drop down to that line may not get the same treatment as the index will show failure signals if it gets back down to the line. A break below 1385 would be a strong short-term sell signal that would likely push the stock down to the major low seen on November 16th at 1343. Any intra-week break below 1343 would break the neckline of the H&S formation and give a 1220 objective. Nonetheless, it should be noted that a daily close below 1353 or a weekly close below 1359 would cause the same break of the neckline to occur.

The SPX should see some selling on Monday and a drop down to at least 1403. After that is will depend on how bearish the traders feel about the future.

Mixed signals were given the previous week but this week all indexes are on the same page and the signal is down. There are no "game saving" economic reports due out this week or further help from the Fed to be seen meaning that the charts are now telling the whole story. A possible exception to the rule would be some type of agreement between the parties regarding the Fiscal Cliff but from everything that is being seen it seems likely that the U.S. will need to get "into" the Fiscal Cliff before the parties truly get serious about a compromise. That being said, it is also likely that for the next few weeks the bulls will have no ammunition with which to stop selling from occurring.

There are lots of very valid end-of-the-year concerns up ahead that traders have not faced before and the simplest solution is to get on the sidelines and wait to see what unfolds before getting back into the market. New tax concerns are likely to cause liquidation of positions over the next 2 weeks, both profitable and losing positions, and without a resolution of the Fiscal Cliff over this period of time there doesn't seem to be much reason to be an aggressive buyer of anything. The big question mark for this coming week is not whether the market will fall but "how much" the market will fall. Answering that question at this time is impossible.