DOW Friday closing price - 12820

The DOW confirmed the double top at 13232/13228 on the weekly closing chart with a second red close in a row, as well as gave a sell signal with a close below 12858 (lowest weekly close in 3 months). The index closed near the lows of the week suggesting that further downside will be seen this coming week. Another red close next week, especially below last year's weekly closing high at 12810, will likely generate strong technical selling and confirm that the seasonal correction (sell in May and go away) has started.

The DOW did not confirm the bearish sell signal on the daily chart as the index was able to stay above the 12700 level that has been important support since February. By the same token, the index did get down to 12748 this past week and with the close near the lows of the week the probabilities are high that low will be broken this week, putting the index down once again near 12700 and at risk of that support breaking if any new negative news from Europe comes out. Such a break would confirm the sell signal given on the weekly chart.

On a weekly closing basis, resistance is minor at 12982 and decent to strong at 13228/13232. On a daily closing basis, resistance is minor 13005, again minor at 13113 and decent at 13252 and 13264. Decent to strong resistance is found at 13279. On a weekly closing basis, support is minor to decent between 12801 and 12810. Below that level there is no support of consequence until the 11858/11934 is reached. On a daily closing basis, support is minor to decent at 12749, and decent at 12715. Below that level, there is minor support between 12356 and 12385 and then nothing until the 12000 demilitarized zone.

The DOW continues to act technically negative as the index was only able to generate a mini bounce on Thursday off of the 100-day MA, currently at 12840, that was supposed to bring in more buying from technical traders and a retest of the 50-day MA, currently at 13050. Nonetheless, the bounce did not go far (up to 12931) and was negated on Friday with a red close below Wednesday's close and below the 100-day MA at 12835. If the index is able to confirm the break of the MA line on Monday with another red close, especially if below 12700, the traders will likely climb aboard the sell side and strong selling will likely be seen. To the upside, the 100-day MA is now a pivot point that will likely determine what the traders will do this coming week. A close above Thursday's close at 12855 will stimulate some new buying, likely taking the index up to the 50-day MA, currently at 13050.

The DOW has now built an inverted flag formation on the daily chart with the flagpole being the drop from 13338 down to 12748 and the flag is the trading range seen the last 3 days up to 12931. A break below 12748 will give an objective of 12158. It should be mentioned that there is no support of consequence on the chart below the 12715 low seen on April 10th until the 200-day MA, currently at 12200 is reached. It is evident on the chart that a break of support at 12700/12715 will bring strong profit taking and technical selling because of the lack of support close-by below as well as the fact that such a seasonal correction, if confirmed has started, should take the index down a minimum of 8% to 10% from the highs.

The charts do suggest the DOW is heading lower but the bulls have refused to give up yet, hoping that some resolution to the European situation will be found. This is still a long term fundamentally bullish market, based on earnings reports, but rallies have found strong selling and buying dips has become expensive to the bulls as no profits are being made and losses mount. It is unlikely the bulls will continue to buy if the European problems don't get fundamentally resolved. Probabilities favor the downside.

NASDAQ Friday closing price - 2933

The NASDAQ confirmed the sell signal given on the weekly chart with another red close below the 3000 level, suggesting that further downside is likely to be seen. Nonetheless, the index continues to stay above last year's high weekly close at 2873 so no failure to follow through signal has yet been given, keeping the possibilities that this recent move down will only be a short-term and minor correction.

The NASDAQ closed exactly in the middle of last week's trading range giving no clue on the charts whether this coming week a rally will occur or not. Nonetheless, it should be noted that the index reached the 100-day MA, currently at 2910, on Tuesday and again on Wednesday and no break of that line occurred, suggesting that further negative news on the economy or from Europe needs to be seen to cause the break to occur.

On a weekly closing basis, minor resistance is found at 3000, decent resistance is found at 3069 and strong resistance is found at 3091. On a daily closing basis, minor resistance is found between 2988 and 2991 and again between 3042 and 3055. Above that level, decent resistance is found at 3069 and strong resistance is found at the double top at 3119/3122. On a weekly closing basis, support is minor at the previous 12-year high weekly close at 2873 and then nothing until minor to perhaps decent support is found between 2616 and 2646. On a daily closing basis, support is minor at 2910 and then nothing of consequence until minor support is found again at 2746.

The NASDAQ has built a bearish breakaway/runaway gap formation with the breakaway gap being between 3097 and 3086 and the runaway gap being between 3016 and 3001. The formation is valid and looms ominously over the index based on the fact that it has been confirmed and that no decent attempt at closure or even retest of the runaway gap has occurred. It also bears mentioning that apart from the gap being at the 3000 level there is also decent intra-week resistance from prior highs at that level as well. Such strength of resistance suggests that the bulls will need some strong positive fundamentals to close the gap and get above the resistance there.

On a positive note, the NASDAQ was able to hold above the 100-day MA all week and did generate a successful retest of the line with the green close on Friday. Confirmation of the successful retest of the line is needed to be seen on Monday with another green close in order for the traders to consider buying the index.

This week is very important for the NASDAQ inasmuch as the index is trading between 2 very clearly defined levels with support being at 2900 and resistance being at 3000. The overall chart outlook with the breakaway/runaway gap formation and the sell signal given on the weekly chart the previous week and confirmed last week does favor the bears but this is an index that at this time is still dependant on fundamental news. Keep a close eye on the 2960 level as it is resistance on the 60-minute chart. If able to get above that level, it is likely the 3000 resistance level will be seen first. By the same token, if the index breaks below 2918, the 2900 level will be seen first.

SPX Friday closing price - 1369

The SPX had the most bearish week of all the indexes inasmuch as the sell signal given on the weekly chart the previous week was confirmed with another red close on Friday, as well as the index giving a failure to follow through signal closing below last year's high close at 1263 on Friday. None of the other indexes generated a close below last year's close.

The SPX continues to get the brunt of the selling interest because of the financial problems in Europe. In addition, on Friday the financial industry received yet another negative piece of news when it was announced that JPM had generated a $2 billion dollar trading loss that could grow even more as the trade is unwound. It is evident that the negatives in the market are more geared to the SPX than in any other index.

On a weekly closing basis, resistance is minor to decent between 1363 and 1370, minor to decent again at 1403 and decent at 1408. On a daily closing basis, there is minor resistance between 1366 and 1374, minor at 1390, decent resistance at 1405, and strong resistance between 1409 and 1416. On a weekly closing basis, support is minor at 1325 and minor to perhaps decent at 1288. Below that level, there is minor to decent support at 1268 and at 1279. On a daily closing basis, support is minor to decent at 1343 and then nothing until 1266 is reached.

The SPX closed slightly above the 100-day MA, currently at 1350, but did close near the lows of the week suggesting that the line will be broken on Monday, at least on an intra-day basis. Last week's low was 1343 and that level has been an important support and resistance level, as well as pivot point, for the last year. A break below 1340/1343 this coming week will likely stimulate further selling down to 1300 where some minor intra-week, as well as psychological, support will be found. On the intra-week chart, though, no support of consequence is found below 1340 until the 1250/1260 level is reached. It is evident on the chart that the SPX is hanging by a thread and that a break of the 1340 support will bring in some strong selling that could collapse the index another 80-90 points in a fast manner.

To the upside and on an intra-week basis, the SPX shows minor to decent resistance at 1378. Additional resistance on a daily closing basis will be found at the 50-day MA, currently at 1385. By the same token, the index was unable to get up to the 1378 level on Thursday or Friday (got up to 1365) in spite of the fact that some buying, as well as a green close, was seen on Thursday. The failure to reach upside objectives of minor consequence is likely indicative that the mood of the traders right now is negative and that further downside is the most likely scenario.

The chart points, especially to the downside, are very clear in the SPX with 1340 being a very important support level this coming week. A break of that level will likely generate an "immediate" spike down to 1300 before any buying is seen. With the index closing only 13 points from that level on Friday and no positive news scheduled, the probabilities favor the bears.

On an intra-day basis, keep a close eye on 1367 as that is where the 50 60-minute MA is currently located. That line was broken 7 trading days ago and the index is therefore in a downtrend on that chart. Only when that line is broken to the upside can it be said that the buying has picked up enough to consider that a short-term bottom (1-5 days) has been found.

The indexes showed substantial weakness this past week but no "major" indication has yet been given that the seasonal correction is under way. Much of the market continues to pivot fundamentally over what is happening in Europe and though the outlook is pessimistic the traders have not yet committed totally to the downside, continuing to leave the door open for some positive news.

Economic reports of some consequence (not major though) will come out this week with Retail Sales, manufacturing and housing data, as well as production and capacity numbers being released as well. Further information regarding Spain's bond yields will likely be seen, setting the stage for the traders to do some decisions this coming week. The probabilities favor the bears as the bulls "need" consistent and overall positive numbers to stop the weakness, while the bears simply need for things to stay the same or get worse.

The indexes are hovering over a precipice as all the indexes are near levels of support that if broken will likely cause strong selling to occur. No support of consequence was built on the way up and if these supports mentioned above break, from a purely chart point of view the indexes would likely take a strong spike down, which in turn would increase the bearish sentiment and confirm that the "sell in May and go away" adage has become true one more time.