DOW Friday closing price - 13190

The DOW eked out a gain on the weekly closing chart but did not look good doing it as the index broke above decent resistance but failed to follow through and ended up closing near the lows of the week suggesting further downside will be seen this coming week. The selloff at the end of the week came when talks between the Democrats and Republicans took a turn for the worse and with no further talks scheduled until the day after Xmas the probabilities have increased that the Fiscal Cliff will go into effect on January 1st.

The DOW started out the week on a strong note with talks of a compromise on the Fiscal Cliff running rampant and the index rushing to the upside on Tuesday and above the decent intra-week resistance at 13338, suggesting the index would run up to at least the 13500 level if not up to the previous 5-year high at 13661. Nonetheless, no follow through to the upside was seen on Wednesday as the talks did not progress, and by Friday when the Republican proposal was trashed the index took a small nose dive that came close to generating a negative signal.

On a weekly closing basis, resistance is minor at 13155 and decent between 13232 and 13276. On a daily closing basis, there is minor resistance at 13248 and at 13311 and decent at 13350. 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 to perhaps decent at 13135, minor at 13077, and minor to perhaps decent again at the 13000 demilitarized zone (12970/13030).

In spite of the strong selloff on Friday the bulls were able to continue the weekly close uptrend in the DOW having generated a new 7-week weekly closing high and 5 weeks in a row of higher lows than the previous week. The index did close near the lows of the week and the higher-lows 5-week trend will probably end this coming week as there are no scheduled economic reports or talks between the parties scheduled before Xmas.

To the downside, if the DOW goes below Friday's low at 13122 there is no support on the intra-week chart until 12977 is reached. Nonetheless, that support level is further strengthened with the 50-week MA which is currently at the same price. On the daily chart though, there is some minor support at 13118 and then again at the 50-day MA, currently at 13090. Further support of some consequence is found at the 200-day MA, currently at 13015.

To the upside, the DOW does show minor resistance at 13245 and then decent resistance at 13329/13338. Above that level, Tuesday's high at 13365 is considered to be decent resistance as well. By the same token, the spike-down move seen on Friday based on the breakdown in the talks between the Democrats and Republicans is not likely to be reversed until the parties meet again and that will not happen until Wednesday at the very least, suggesting that the resistance levels above will not be in play on Monday.

The fundamental situation is back to square one and with only a few working days left before the Fiscal Cliff goes into effect it is very unlikely that anything will be accomplished before the second week of January. As such, the probabilities favor the DOW heading lower with 12970/12977 as the "minimum" downside target, likely to be seen as early as Monday. It should be noted that the 50-week MA has been broken repeatedly during the last 2 years and cannot be depended on at this time to hold up. The 200-day MA is likely to be a bit more dependable but the reality is that it was broken convincingly in November due to the Fiscal Cliff issue and stayed below the line for 3 weeks, suggesting the line could easily be broken again due to the same issue taking center stage.

The probabilities favor the DOW having a slow but somewhat negative "half-day" on Monday with the 13000 level getting targeted. Nonetheless, it is unlikely that any further selling below 12970 will be seen until the traders see what happens on Wednesday when the Democrats and Republicans are due to talk again. Probabilities favor nothing getting done next week and the talks resuming in earnest the 2nd week of January. If that scenario occurs, the index will stay under selling pressure and a drop down to at least the 12700 area of intra-week support will happen.

It should be mentioned that if the DOW gets below last week's low at 13122 and closes out the week in the red, the Head & Shoulders formation mentioned the last 2 weeks in the newsletter will be formed on all charts (intra-week daily and weekly close) and that will add short-term chart pressure to the index. Should that event occur (probable now), it will likely cause the traders to take the index down to test the neckline of the H&S formation which is at 12471. Further action will be determined by the end result of the Fiscal Cliff talks.

Probabilities do favor sell pressure this coming week, at least on Monday.

NASDAQ Friday closing price - 3021

The NASDAQ accomplished a new 10-week high weekly close and continues on its way to test the left shoulder resistance of a possible Head & Shoulders formation at 3091 (3134 on an intra-week basis). The index did outperform the other indexes this past week as it was the only one that closed in the upper half of the week's trading range, suggesting that further upside will be seen this coming week. No resistance is found on the weekly chart until 3085 is reached (3065 on a weekly closing basis).

The NASDAQ gapped down bearishly on Friday between 3034 and 3022 but the bulls were able to generate buying when the index neared the 200-day MA at 2992 (got down to 2995) to close out the day on the highs of the day and with high probabilities the gap will be closed on Monday. The rally action seen on the chart in spite of the negative fundamental news does suggest the drop could end up being a 1-day event and that the rally will continue upward this coming week. This is definitely a mixed signal as the other indexes suggest the action this coming week will be to the downside.

On a weekly closing basis, there is minor to decent resistance at 3069, decent at 3091 and strong at 3179. On a daily closing basis, resistance is minor at 3042, decent at 3054/3055, 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 2988/2981, minor to decent at 2971/2972, minor to decent again at 2961 and decent at 2910.

The NASDAQ gave a buy signal on Tuesday when it closed above the decent resistance area at 3022 and it should be mentioned that even though the indexes were under strong selling pressure on Friday, the index did not negate the buy signal having closed at 3021 on Friday just 1 point below the mini breakout on Tuesday. With the index closing on the highs of the day it would seem a green close is the most probable event for Monday and that would successfully test the breakout area and give the bulls a chart reason for being buyers.

To the upside, the NASDAQ will once again show resistance intra-week at the 3033/3035 level and a bit stronger at the weeks high at 3061. On a daily closing basis though, the index only shows resistance at 3054. Above that level the 3085/3091 area shows decent intra-week and weekly close resistance. If the index is able to get above 3061 any day this week, the probabilities are high that the index will get up to that area.

To the downside, the NASDAQ will turn negative with a red close on Monday. Nonetheless, for the chart to turn short-term bearish the index will need to close below the 200-day MA, currently at 2992. The index does show intra-week support between 2958 and 2975 and again at 2936. Nonetheless, a break below 2936 in conjunction with a close of the runaway gap at 2928 will likely push the index down to close the breakaway gap at 2859. Some decent intra-week support is found at 2837.

The NASDAQ could turn out to be a key on Monday as a red close would suggest all indexes are heading lower while a green close would likely mean that Friday's weakness was a "passing affair". The index was the leader for most of the time during the last 4 years and if the index once again takes the leadership position it will instill confidence among the traders. By the same token, if the index closes in the red on Monday's it will "add" to the ammunition the bears gained on Friday and likely help push the market down.

SPX Friday closing price - 1430

The SPX gave mixed signals this past week having made a new 9-week intra-week and weekly closing high but spiked down on Friday after the negative news came out, to close in the lower half of the day's trading range and suggesting further downside will be seen on Monday. The signal was also mixed when the bulls were able to keep the index from giving a failure signal on the daily closing chart having closed at 1430 and above the 1428 daily close resistance of some consequence that got broken on Tuesday.

The SPX is still in an uptrend with the past 5 weeks showing higher highs and higher lows and until that trend is broken the traders will lean to the buy side. The DOW chart suggests that trend will be broken this week but the NASDAQ chart suggests it won't happen, likely making the SPX the decider. The index has been the leader the past few weeks but the close in the middle of the trading range chart does suggest that it is a toss-up this coming week.

On a weekly closing basis, resistance is minor at 1440, minor to decent at 1460 and decent to strong at 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 1413, at 1406 and at 1397, minor to decent at 1370, and decent at 1359. On a daily closing basis, support is decent at 1428, minor at 1407, minor to decent at 1399, minor at 1392, and decent between 1353 and 1358.

The SPX broke above a decent to strong resistance level at 1428 on Tuesday and in spite of the negative news on Friday the index did not negate the breakout. The index did spike down and closed in the bottom half of the day's trading range on Friday suggesting that further intra-week downside will be seen on Monday. If that happens and the index closes below 1428 (2 points lower than Friday's close) then the chart will turn bearish for the rest of the week. Nonetheless, if the index is able to close in the green on Monday it will give the bulls reasons to be buyers the rest of the week.

Tuesday's close in the SPX at 1446 will now be important resistance because if the bulls are able to negate Friday's drop, the traders will turn bullish once again and likely push the index to test and possibly break the 5-year high made a couple of months ago at 1465.

Probabilities favor the downside if for no other reason than nothing fundamentally positive is expected to happen this coming week.

Mixed signals were given once again this past week further clouding the chart picture. This is not surprising as the traders are totally unsure of what fundamental picture will emerge after January 1st. In addition, with only 4 trading days left in the year and most traders on the sidelines, there is little conviction on either side to trade anything. In addition, the last week of the year is generally very slow, with small trading ranges, and uneventful.

Nonetheless, the Fiscal Cliff issue facing the market is of great consequence and any decisions that come out on that basis is likely to have a strong impact, especially since most traders will be on the sidelines for the holidays and volume is very low. Any news could move the market substantially in one direction or the other.

Probabilities favor the downside if for no other reason that if "nothing is done" it will be a strong negative event for the market. The divide between the Democrats and Republicans on this issue is deep and possibly insurmountable and that could mean the market will be "over the cliff" soon. It is dangerous being a buyer or a seller but there is a lot more risk for a buyer than a seller because even if things get resolved world-wide economic conditions will continue to weigh on the market, whereas if the Fiscal Cliff does not get resolved, the U.S. will be in worse shape than everyone else.