DOW Friday closing price - 14547

The DOW did not follow through on last week's upside momentum and close on the highs of the week and closed in the red and more than 300 points lower, suggesting that a temporary top to this rally may have been found. There wasn't any specific piece of news that caused the down move so it must be attributed to an index that is overbought and reaching a major psychological level of resistance where traders were already anticipating taking profits.

The DOW closed near the lows of the week and further downside is expected to be seen this coming week with the likely objective of retesting the previous all-time high weekly close at 14093. Past history has shown a high likelihood that the first correction off of a major rally will be around 800 points. Such a correction from the recent high at 14887 would put the index down around the area of the previous all-time high weekly close.

On a weekly closing basis, resistance is minor to perhaps decent at 14865. On a daily closing basis, there is decent resistance at 14865 and minor resistance at 14756. On a weekly closing basis, support is minor at 14093 and again at 13981. Below that, there is no support until minor support is found at 12938. Decent to strong support is now found at 12588. On a daily closing basis, support is very minor at 14537/14550, very minor again at 14447 and minor to perhaps decent at 14421.

The spike rally in the DOW the previous week was totally negated with the same kind of spike down drop this past week below the previous week's low at 14497. The negation of the spike up rally (without a negative catalyst) is a strong sign that the bulls have spent all their ammunition and will need to reload before attempting higher numbers. Reload means new positive economic reports or finding an area where chart traders feel the support is sufficient to attempt new buying with limited risk. With the index having climbed up 2416 points since the last correction it is/was evident that support levels had/have not been built and further upside would simply mean additional risk with decreasing profit potential.

The rally in the DOW was expected to continue up until the end of the third week of the second quarter of earnings reports but this past week the earnings reports that came out were generally better than expected but they were not sufficient to prevent the DOW from selling off, suggesting the remaining earnings reports will not likely "turn the tide" unless extremely positive (not something that has happened yet). It therefore must be assumed that traders will be looking mostly at the chart aspects of the index and not necessarily on the fundamental ones.

To the downside the DOW does not show any support of consequence on the weekly chart until the 14000-14200 level is reached. Nonetheless, some support has been built on the daily chart between 14380 and 14434 which also includes the 50-day MA, currently at 14360. The index got down to 14444 on Friday and generated a reversal having made a new 10-day low but then closing in the green and on the highs of the day suggesting the first course of action for the week will be to the upside. The index is still in a major bull-trend and support levels are supposed to generate buying. A break below 14380 though, would erase all support until the previous daily closing high at 14035 is reached.

It should be mentioned that the DOW has not yet tested the all-time high on an intra-week basis as the index has shown 7 straight days in a row of lower highs. The index has already successfully tested the all-time high on a daily closing basis with the 14756 close on Tuesday but not yet on an intra-week basis. Having closed on the highs of the day on Friday it is likely the index will break the 7-day trend of lower highs and generate a rally that could end up being considered a successful intra-week retest. The index shows very minor intra-week resistance at 14563 and then nothing until 14684. A rally to either one of those levels will be technically considered a retest.

The DOW is likely to move higher the first few days of the week as the index was able to hold support on Friday and generate a small but possibly short-term indicative rally at the end of the day. Nonetheless, this coming week has a slew of important earnings and economic reports with CAT, DD, NFLX, AAPL, and AMZN reporting, as well as Durable Goods on Wednesday and GDP-ADV on Thursday meaning that any of these reports could be a "stopper" if less than expected, but not necessarily a "booster" if better than expected.

The chart suggests the DOW will enjoy a couple of days of limited rally with 14684 as the likely upside objective, followed by weakness the rest of the week and a likely red weekly close on Friday. The index had a 441 point trading range this past week and it is certainly possible the index could duplicate the trading range and see a high of 14684 and a low of 14243. By the same token, it is also possible that if the economic reports, starting with Durable Goods which is expected to come in at -3.1%, come in lower than expected that the index could extend its trading range and reach the 14000 level this coming week. I do expect to see further weakness in the DOW with a strong probability of the index generating a fast 800 point correction before the bulls come back and buy with strength.

NASDAQ Friday closing price - 3206

The NASDAQ is now showing a "megaphone top" formation that seems to have been completed this past week and that does suggest further downside of consequence will be seen. A Megaphone Top is formed when a stock/index makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low. In this particular case, the NASDAQ made the first peak of the megaphone on the second week of March at 3260, followed by the first trough at 3205, then followed with the second peak the last week of March at 3270, follow by the second lower trough the first week of April at 3168, then followed by the "third" peak the previous week at 3306 and followed by completion of the pattern this past week when the index broke below the previous 2 lows with the drop down to 3154 seen this past week. The target price of the megaphone top is 3030.

The NASDAQ, in completing the megaphone top, also generated a confirmed break of the 50-day MA, currently at 3217, which has not occurred at all this calendar year. It can also be said that the index gave a failure to follow through signal as well since a new 14-year high was made the previous week that was negated when the index closed below the previous high weekly close at 3267. The conglomeration of negative signals given this past week greatly increases the probabilities of the index heading lower toward the target price (3030), which also happens to be approximately where the 50-week MA is currently at. The 50-week MA is a natural target when a stock or index is on a major uptrend but has found a temporary top and is experiencing a correction.

On a weekly closing basis, resistance is minor to decent at 3267 and decent at 3294. On a daily closing basis, minor resistance is found at 3213, decent resistance is found between 3258 and 3267 and strong resistance is found at 3300. On a weekly closing basis, support is minor to decent at 3202 and minor at 3161. On a daily closing basis, support is minor at 3203, minor to decent at 3166 and minor to decent again at 3116.

The NASDAQ did leave the door open for a reversal to the upside when the bulls were able to generate enough buying on Friday to close above the 3203 level that has developed as a pivot point support on the weekly chart. Nonetheless, the same pivot point support existed in the daily chart but was soundly broken this past week when the index closed at 3166 which was the first time that has happened in the last 6 weeks. The index was able to negate that break with a close on Friday at 3206 but the break remains as evidence that there is more weakness now than there has been recently.

To the upside, the NASDAQ now shows intra-week and daily close resistance at 3213. The resistance is considered minor but based on the megaphone top formation as well as on the break of the 50-day MA, which is presently at 3217, it has to be considered indicative. Simply stated, if the index is able to close convincingly above 3213 any day this coming week, many of the negative signals given this past week will be diminished. A close above 3222 will likely cause the index to rally to test the daily close resistance between 3258 and 3267. Strong resistance is found at 3300.

To the downside, the NASDAQ still shows minor support on a daily closing basis at 3203 but if broken the index would likely drop down to at least 3167 and if a close below 3166 occurs it will be straight down to the next support level at 3105 (3116 on a daily closing basis). The support at 3105 is minor to decent but not supported by any other previous highs or lows suggesting that it is very easily breakable and if that occurs the gap between 3021 and 3076 will likely be targeted for closure, making the 3030 megaphone top formation objective viable and likely to be reached.

The chart of the NASDAQ strongly suggests the downside evaluation is likely to be correct, probably even more so than the DOW objective of reaching the 14000 level. It should be mentioned that the megaphone top formation is quite rare but when confirmed it is very reliable. The DOW did have what looked like a megaphone top formation in February but in looking back it was not as clearly defined as the one in the NASDAQ is, suggesting this is the real thing. I do believe the 3213 level is a key this week though it really has nothing to do with the megaphone. Nonetheless, a failure to break above 3213 this week, and probably mostly on Monday, would be strongly disappointing to the bulls after the late rally and reversal seen on Friday.

SPX Friday closing price - 1555

The SPX failed to follow through on its all-time weekly high close at 1588 by generating a red close on Friday and below the previous all-time high close seen in 2007 at 1561. The index fell slightly short of giving a sell signal on the weekly chart when the bulls were able to close the index above the most recent low weekly close at 1553. Nonetheless, the index did close near the lows of the week, suggesting further downside will be seen this coming week. In addition, the double low support at 1538/1539 was broken this past week also suggesting the bulls have lost their "mojo" and that they will need fundamental help to prevent further downside from being seen.

On a slight positive note, the SPX did slightly break the 50-day MA, currently at 1544, with a close at 1541 on Thursday but the bears were not able to confirm that break when the index closed in the green on Friday. If the index is able to follow through to the upside convincingly, it will be seen as a successful retest of the line and could bring in new buying. By the same token, if the index falls back and generates a second close below the line this coming week it will look like an additional failure and will likely generate strong selling.

On a weekly closing basis, minor resistance is found at 1569 and decent at 1588. On a daily closing basis, there is minor resistance at 1563, minor to decent at 1570, decent at 1574 and decent to strong at 1593. On a weekly closing basis, support is minor at 1553, very minor at 1515, and minor to perhaps decent at 1500/1503. On a daily closing basis, support is minor at 1545 and minor to perhaps decent at 1541. Below that, there is no support until 1487/1495 area is reached.

The SPX was a good indicator this past week since 80% of the big financial companies have now reported earnings. The earnings reports in general were better than expected but it is noteworthy to see that they were not sufficient to generate new buying, suggesting that the index is spent and in dire need of more positive news to keep the rally alive.

It has to be mentioned that the SPX broke the 2000 high at 1552 by 24 points in 2007 (got up to 1576) and now the index is showing that the 2007 high has been broken by 23 points (high seen the previous week was 1597), meaning that there is a very definite possibility that based on the similarities the index might have made another major top and from which a downtrend will begin. On the other side of the coin, it has been seen in the past and in both the SPX and in the DOW that the first drop is a mini correction (800+ points in the DOW), followed by a new high by a few points, which then is followed by a long-term downtrend. Such a scenario would mean the index could end up making a new high by a few points before a downtrend begins.

To the upside, the SPX shows minor resistance at 1563, followed by stronger resistance between 1570 and 1574 and the strong resistance at 1588. The index did close on the highs of the day on Friday and the first course of action this coming week is likely to be to the upside with 1563 a viable upside objective. If the index fails to go higher than 1563 the selling is likely to intensify to the point of generating a strong move down thereafter. To the downside, the index shows only minor daily close support at 1541 and at 1545. Nonetheless, it should be mentioned that the intra-week double low support at 1538/1539 was broken this past week, meaning that the bulls are no longer in control, at least for the short-term, and that the bulls will need fundamental help to turn the tables around. Having seen that the earnings reports did not help the index this past week, in spite of being better than expected, it is unrealistic to believe that fundamentally help will be found.

Below Thursday's low at 1536 the SPX has no support whatsoever until the 1487-1500 level is reached, meaning that if 1536 is broken a spike type drop of 35-40 points could be seen in a matter of 1 or 2 days. The chart does suggest it will happen but does not give the time frame for it happening or how high the index could rally before it happens.

The bulls failed to follow through on their victory the previous week as all the indexes gave back this past week what was gained. No specific catalyst caused the sell off which makes it even more indicative that the levels reached will be difficult to maintain without the economy seeing further progress of consequence.

Nonetheless, this coming week reports of consequence are scheduled that could make a fundamental difference as Durable Goods and GDP-Adv come out on Wednesday and Friday respectively and on the earnings front NFLX, AAPL, AMZN, CAT, and DD report early in the week. Earnings reports have generally come out better than expected but not to the point of suggesting that further upside should be seen and on the economic front reports have generally been less than expected suggesting a slowdown in the economy is in progress. It is unlikely the reports this week will be substantially different from others than have come out, meaning that the market is likely to see a bit more selling over the short-term.