DOW Friday closing price - 12815

The DOW continued its recent 6 week correction by closing on Friday below last year's high weekly close at 12810. The close below 12810 is now the second failure-to-follow-through signal given in the last 4 weeks suggesting that the long-term uptrend is at risk of not only stopping but becoming a downtrend. It should be mentioned that the last time 2 failure signals like this occurred was in 2005 and the end result was an 8-month sideways trend. The fundamental picture is evidently different from the one in 2005 but the action and chart seen this past week do suggest there is serious concern regarding the problems facing the market and that it won't be resolved until the underlying problem is fixed. It is unlikely that will happen this year.

The DOW closed in the lower half of the week's trading range suggesting further downside will be seen this coming week, at least on an intra-week basis. Nonetheless, the index was able to generate a small rally on Friday, as well as a daily green close, also suggesting that the selling pressure has ebbed and that a rally at some point could be seen this coming week.

On a weekly closing basis, resistance is decent at 12810, minor at 13090 and decent again between 13232 and 13276. On a daily closing basis, there is minor resistance at 12710, minor again at 12837 and minor to decent at 12943. Decent to perhaps strong resistance will now be found at the 13000 demilitarized zone. On a weekly closing basis, support is decent to strong at 12118. Below that level, no support is found until decent to strong support is found at 11231. On a daily closing basis, support is minor at 12542 and minor to perhaps decent at 12502. Below that, there is decent support at 12102.

The DOW is now in a precarious situation as the next chart support level of consequence is at 12000. Any further daily or weekly close weakness below 12500 could generate some panic selling and end-of-the-year liquidations that would damage the long-term uptrend substantially. It should also be mentioned that if the index closes out the month (Friday, November 30th) below 12393, a sell signal would be given on the monthly chart which in turn would give a downside objective of 11000. No montly sell signal has been given since May08 so that is a cause for concern due to the fact the index is less than 200 points from that happening.

If a sell signal is given on the monthly chart and the DOW gets down to the 11000 objective, it would put the index at risk of a recession signal being given as a drop down to 10929 would be a 20% correction from the high of the rally. It is therefore clearly evident that what the index does at these prices over the next 2 weeks is critical as a close at the end of the month below 12393 would likely cause a domino effect to happen that would generate some aggressive selling by technical traders. It must be mentioned as well that Europe is already in a recession and the rest of the world is heading there as well, suggesting that a recession here in the U.S. would not be much of a surprise.

The DOW did close on a small positive note on Friday, having made a new 4-month low and then closing in the green and near the highs of the day, suggesting the first course of action for week will be to the upside. Minor resistance is found between 12600 and 12610 but above that level there is no resistance until the previous low daily close of consequence at 12710 is reached. Even then, that resistance level is considered minor since it is from a low daily close. On the 10 and 60 minute charts, resistance is also found between 12690 and 12750 with the 50 60-minute MA currently at 12730, the 200 10-minute MA currently at 12690 and a previous double bottom low on the 10-minute chart at 12747. Nonetheless, above 12610 there is no resistance on the intra-week chart until 12890/12900 is reached, suggesting that if the bulls are able to get some momentum to the upside going early in the week that a rally that high could be seen. Further intra-week resistance is found at 12961 and the stronger resistance is found between 12977 and 13000 which is where the 200-day MA is currently located.

To the downside, the DOW shows minor intra-week support at 12450, at 12336, and at 12311. Below that, there is no intra-week support until decent to perhaps strong support is found at 12035.

It is very evident that this coming week is once again pivotal for the DOW as further downside will make it very difficult for the bulls to generate any kind of a rally without some "concrete" fundamental evidence that a compromise between the Republicans and the Democrats regarding the Fiscal Cliff has occurred. Such an event is not likely to happen this coming week, as such, the rally needs to be chart oriented and that begins with a break of the 12600/12610 intra-day resistance level.

Probabilities favor the DOW generating a rally this coming week but any red close below 12500 will likely be a "nail in the coffin".

NASDAQ Friday closing price - 2853

The NASDAQ, like the DOW, gave a second failure-to-follow-through signal on Friday closing below the 2011 weekly closing high at 2873 after having first closed 6 weeks ago below the weekly high close made in March at 3090. The index did close in the lower half of the week's trading range suggesting the probabilities do slightly favor the index going below this past week's low at 2810 this coming week.

The NASDAQ closed the runaway gap between 2870 and 2876 that was built on July 26th and that means the breakaway gap between 2781 and 2796 is now a target. By the same token, the index generated a positive reversal day on Friday having made a new 5-month low at 2810 and then rallying above the previous day's high at 2855. The index came within 2 points of making it a key reversal day when it closed just below Friday's high at 2855. Based on Friday's action, the first course of action on Monday should be to the upside.

On a weekly closing basis, there is minor to decent resistance at 2873, minor resistance at 2937 and decent at 3000. On a daily closing basis, resistance is minor at 2870 and then again between 2904 and 2910. Above that level, resistance is minor at 2930, at 2958, and decent to perhaps strong between 2976 and 2985. On a weekly closing basis, support is decent to perhaps strong at 2747. On a daily closing basis, support is minor at 2836 and minor to decent at 2778. Strong support is found at 2747.

This past week, the NASDAQ broke 4 minor intra-week support levels (2890, 2839, 2837, and 2818) before finding enough support at 2810 to generate a green close day. Nonetheless, on a daily closing basis, only one of those lows was negated suggesting that the bulls did not accomplish all that much with the rally on Friday. The index did generate a reversal day on Friday and further upside is expected to be seen on Monday with 2882 as the objective, suggesting that all of those breaks could be negated this week if the rally occurs and the index is able to close above 2866.

To the upside, the NASDAQ does show 2 previous intra-week highs of minor consequence at 2882 from May and June that could offer decent resistance since the index is under selling pressure. The area is further strengthened by the fact the 50 60-minute MA is currently at 2884. As such, I will say that the 2882 level is likely to be considered a pivot point of importance this week. A failure to get above that level will likely cause the selling pressure to resume.

A break above 2882 will likely generate some new buying interest as above 2882 there is no intra-week resistance until 2947, and even then that resistance is considered minor suggesting the index could rally all the way back up to the 200-day MA, currently at 2985, which also includes a previous intra-week high of consequence at 2987. It will be difficult for the index to rally above 2985/2987 but the fact remains that if the index is able to get above 2882 an additional 100 point rally could be seen.

To the downside, the NASDAQ shows support at 2802, at 2774, and at 2726. In addition, the index shows an open breakaway gap at 2781/2796 that is going to be a magnet if Friday's low gets broken. The chart suggests the index could see 2774 this coming week if Friday's reversal fails or the bulls are unable to get above 2882.

It does need to be mentioned that AAPL (the #1 stock in the index) did generate an additional sell signal when the stock made a new 10-month low on Friday, below the previous low at 522.92 (got down to $505) as well as closed below the strong weekly close support at 530.37. The stock does show strong psychological support at $500 but the fact remains that it broke support suggesting the uptrend is over and that a sideways to perhaps downtrend is now in effect. Simply stated, the probabilities of a substantive rally in the index have diminished due to the travails AAPL is experiencing.

SPX Friday closing price - 1359

The SPX also generated a second failure-to-follow-through signal when the index closed below the high weekly close in 2011 at 1363. In addition, the index closed below the 50-week MA (currently at 1363) for the first time since May and for the second time since December suggesting that if it closes lower next Friday it will continue on downward to test the strong intra-week support at 1266. By the same token, the last time the index closed below the 50-week MA it did it by only 6 points and the following week a reversal occurred that negated the break and stimulated the rally up to the 5-year high at 1474. The situation is similar right now as the index closed below the MA line by 5 points on Friday, closed near the lows of the week but showed some late buying interest, and is oversold suggesting that it could once again turn out to be a 1-week break.

The 50-week MA has been a very good indicator in the SPX for the past 126 weeks (29 months) as there have only been 11 occasions when the index closed below the line and only three where the index closed below the line for more than 1 week in a row (in Jun/Aug10 twice for 4 weeks in a row and Sep11 once for 2 weeks in a row). By the same token, on every occasion when the index closed below the line 2 weeks in a row it was evident the index was in a strong correction which was not resolved immediately. As such, the close next Friday is likely to be a strong clue as to what the index will do the rest of the year.

On a weekly closing basis, resistance is decent at 1363 and again at 1408. On a daily closing basis, resistance is minor to decent at 1374 and again at the 200-day MA, currently at 1385. On a weekly closing basis, support is minor at 1316 and strong between 1268 and 1278. On a daily closing basis, support is minor at 1353 and minor to decent between 1338 and 1343. Below that level, support is minor at 1313, and again at 1295 and strong support is found at 1278.

The SPX did have a reversal day on Friday having made a new 4-month low and then closing in the green and near the highs of the day, suggesting the index will see some follow through to the upside on Monday with 1382 as the upside objective, which is where the 200-day MA is currently located. Nonetheless, it should be mentioned that there is some minor to decent intra-week resistance at 1363, which was the late day high on Friday, and if the index is unable to take out that resistance in the first hour of trading on Monday, the traders are likely to sell the index back down to the lows seen on Friday.

The SPX is facing an important week inasmuch as this area is technically pivotal. Friday's low at 1343 has been a very important pivot point repeatedly since May of last year and a break of that level on a daily closing basis will likely generate a drop down to the 1300 level. By the same token, the 1363 to 1370 level has also been a decent resistance in the past, both intra-week and on a closing basis, meaning that the index is really in a small trading range where some short-term decisions will be made depending on what direction the index goes from here.

The probabilities slightly favor the upside inasmuch as the b>SPX has already dropped 9% in the last 6 weeks and is at important levels of support as well as oversold. If the traders trade the index technically this coming week there should be a rally. Unfortunately for the bulls, the fundamental issue facing the market is severely negative and "any" stumble in the process will immediately bring strong selling.

The Fiscal Cliff was been on the lips of every trader this past week as it is a humongous pitfall in the economy that if not resolved positively will cause a second recession to occur. For the next couple of months the market will pivot around the issue and the ability or inability of the Democrats and Republicans to come up with some form of compromise. The chart picture will remain as a guideline of what is happening but is not likely to generate aggressive buying at any time until some agreement is achieved, even if support levels hold up.

The market will be held hostage for the next few weeks as long as the Fiscal Cliff issue remains unresolved. The bias will be generally to the downside with only nervous and limited short-term rallies being seen, based on charts support levels holding. This was particularly evident this past week when all the indexes broke below previous high weekly close areas of importance giving secondary failure-to-follow-through signals. On the other side of the coin, it bears mentioning that the longer term bullish bias remains as no strong chart support levels of support have yet been broken and will not likely be broken until some further negatives appear.

There are no important economic reports due out this coming week and it is likely the week will be mostly traded via charts. Nonetheless, this is a marketplace that is jittery and prone to fall if any negative comments come out from either party regarding setbacks in the talks. Such comments are possible at any time as the parties still disagree vehemently on what needs to be done, suggesting that rallies will be tentative as the traders buy gingerly and likely only on a very short-term basis.