DOW Friday closing price - 15558

The DOW saw increased volatility and movement this past week causing the index to generate a reversal week (higher highs and lower lows than the previous week), which could have signaled a top to this rally had the index closed in the red. Nonetheless, the bulls managed to "eke" out a green weekly close and near the highs of the week in the last 10 minutes of trading on Friday thus keeping the index in a bull-trend format and suggesting that further upside will be seen this coming week as the reversal was a positive one.

On a negative note though, the bulls have been having trouble going higher as the DOW has only rallied, on a weekly closing basis, a total of 204 points above the previous all-time high over the past 4 weeks, suggesting there is a strong reluctance from the bulls themselves in buying at these levels. It should also be mentioned that the increase in volatility seen this past week does support the idea that the index is nearing a level where another correction can be expected. In addition, with the Asian markets now in a downtrend and expected to go lower, it is going to be very difficult to maintain interest in buying at these levels, especially since the economy continues to muddle along without expectations of a strong pickup anytime soon.

On a weekly closing basis, there is no resistance above. On a daily closing basis, there is no resistance above. On a weekly closing basis, support is minor at 15354 and decent at 14799. On a daily closing basis, support is very minor at 15451, minor at 15409 and minor again between 15296 and 15318. Below that level, support is decent at the 15000 demilitarized zone and decent to perhaps strong at 14659.

This earnings quarter has not done anything especially positive for the DOW as profits have come out only slightly above the expected numbers but sales continue to show a downward trend, meaning that as time goes on if things do not change, the bulls will not be able to make any kind of a fundamental case for higher numbers. As it is, this rally has been more Fed driven than fundamentally driven and there is little "more" that the Fed can do.

To the upside, the DOW has only general or psychological resistance levels with 15700 being the general resistance and 16000 being the psychological one. Nonetheless, in looking at the longer term chart and using the weekly closing chart, a 2-point trendline can be drawn using the major all-time high seen in Dec99 at 11750 and the major all-time high seen in Oct07 at 14198 that connects this year at 15850. Using the intra-week highs on both of those years, it shows a possible upside target of 16050. In looking at the fundamentals and considering the potential bubble that has been created with the stimulus supplied by the Fed, it does stand to reason that these projected resistance levels could signal a major top to this 4+year rally that started in March 2009 at 6469 and that has caused the index to rally almost 10,000 points and increase 2.48 times in price.

As mentioned in last week's newsletter, the DOW has now accomplished making a new all-time high above the previous one which is one of the conditions seen prior to the major tops made in 1999 and 2007. Based on those previous occasions, the index could go anywhere from 110-365 points above the previous high before encountering strong selling. Nonetheless, just going above the previous high does fulfill the minimum requirement and with the important earnings reports mostly out and the big important monthly economic reports due out this week, it is possible that by the beginning of next week the index will start showing some strong selling interest.

The DOW broke out of a bullish flag formation on the daily chart 2 weeks ago but did not see follow through last week. Nonetheless, the flag has not been negated, simply expanded with 15604 as the new top of the flag and 15405 as the new low of the flag. A break above 15604 would now offer a 16151 upside objective. The upside objective fits in well with the top of the 2-point trendline mentioned above at 16050, meaning that from several different perspectives, the index still has potential for a decent rally from here. To the downside, the DOW now shows pivotal support at the 15400 level, which if broken would likely push the index down to the 15000 level where psychological support is found.

It is evident that this coming week the DOW will be dependent on what the economic reports say. The reports due out this week all have the possibility of being catalytic, meaning that if one of the reports comes in much better than expected, a rally up to those upside objective could easily be seen. By the same token, a major top is usually built off of a spike rally and if the index can get up above the 16000 level this week, the possibilities of a spike top would be high.

The DOW is likely to move higher at the beginning of the week as the big reports that could have an impact do not start coming out until Wednesday. The index closed on a positive note on Friday and unless something happened over the weekend in Asia or Europe, there are few reasons for the bears to show up on Monday. Expect another new all-time high to be made this coming week.

NASDAQ Friday closing price - 3613

The NASDAQ made yet another new 13-year weekly closing high this past week after getting help from a positive earnings report on AAPL and FB, as well as new all-time highs in AMZN. The index did not make a new 13-year "intra-week" high (needs to get above 3624) but did generate a positive reversal on the weekly chart (lower lows, higher highs and a close above the previous week's high) as well as a close on the highs of the week, suggesting that strong buying is likely to be seen at the beginning of the week and that a new intra-week high will be made.

The NASDAQ likely carried the overall market up this past week as there were signs that the indexes were losing traction due to lower than expected earnings in DOW stocks and forgotten earnings in SPX stocks. Nonetheless, the stocks in the index that reported earnings this past week generated enough of a rally to overcome all the negatives that were found.

On a weekly closing basis, there is no resistance until decent resistance is found between 3860 and 3887. Above that level, there is minor to decent resistance at 4004 and decent to perhaps strong between 4234 and 4246. On a daily closing basis, there is no resistance in the last 12 months. On a weekly closing basis, support is minor to decent at 3357 and decent at 3202/3206. On a daily closing basis, support is very minor at 3587 and minor at 3579. Below that level, there is minor support at 3502 and minor again at 3459. Below that level, support is decent at 3400.

The NASDAQ tried all week to get down to the gap area between 3522 and 3552 with drops down to 3577 on Tuesday, 3573 on Wednesday, 3579 on Thursday, and 3581 on Friday. The failed attempts to take the index down to test the gap were a strong disappointment to the bears and with the help of AMZN making new all-time highs on Friday in spite of a negative earnings report, the bears capitulated and the index made a new 6-day high.

To the upside, the NASDAQ shows only very minor intra-week resistance at 3624 from the high seen 2 weeks and then open space above until the psychological resistance at 4000 is reached. With the probabilities being very low that the stock will be able to rally an additional 400 points at this time, the traders will be closely monitoring any level where selling is found. To the downside, the NASDAQ will now show support at 3573 and then again at the gap area at 3552. Closure of the gap at 3522 would likely push the stock down to the 3500 demilitarized zone.

The NASDAQ is now likely in control of the market as it is the index that has received most of the positive earnings reports as well as has some of the most popular traded stocks, meaning that the interest and attention will be focused on it. By the same token, some of the attention will be channeled this week on economic reports and slightly away from earnings, suggesting that it is somewhat unlikely that there will be any special leadership among the indexes, especially if the economic reports are negative.

With no resistance above, other than the intra-week resistance at 3624 that is likely to be broken first thing on Monday, the traders will mostly focus on what the index does not do rather than what it does. It is expected the index will "run" to the upside (at least on Monday and Tuesday), especially if AMZN continues its unexpected run to new all-time highs off of a negative earnings report.

SPX Friday closing price - 1691

The SPX acted as an observer this past week as neither the support at 1669/1671 nor the resistance at 1698 were in danger of being broken. The traders in the index followed what the other indexes were doing but at no time was the SPX in a leadership position this past week. The bulk of the important earnings reports came out the previous week and financials are no longer in the minds of the traders.

In spite of being mostly an observer at this time, the SPX may be the index the traders watch closely for chart clues inasmuch as the index has good psychological resistance at 1700 and good chart support at 1670, meaning that a confirmed break above or below that small trading range would suggest a breakout or a breakdown is occurring in the overall market.

On a weekly closing basis, there is no resistance above. On a daily closing basis, there is no resistance above. On a weekly closing basis, support is minor to decent at 1592, minor to perhaps decent at 1558/1561, and decent between 1553 and 1555. On a daily closing basis, support is very minor at 1676, minor at 1669, minor at 1649, and very minor 1634. Support is decent between 1608 and 1612 and decent at 1573.

Technically speaking, the SPX generated a reversal inasmuch as a new all-time high was made and the index closed in the red. Unfortunately for the bears, the red close was only by 1 point and that is not something that will breed a lot of confidence in the bear traders to short the index this coming week, at least not until further fundamental information is released in the form of the important economic reports due out the latter part of the week.

To the upside, the SPX has no previous resistance but the 1700 demilitarized zone must be considered a decent psychological resistance, especially since many analysts at some point this year predicted that would be the upside objective for the year. Nonetheless, should the index clear the 1700 level in a convincing way, there is no other resistance above. To the downside, the index has some support at the previous all-time daily and weekly closing area between 1667 and 1669. Closes below that level would give a failure to follow through signal and likely cause the index to fall down to the only other recent support area at 1600.

The probabilities still favor the bulls as the SPX has been in a major uptrend and no signs of it stopping have yet been given.

The index market continues in a bull trend and though the upward momentum has been slowing down, no signal has yet been given that the trend is over. A large portion of the important earnings reports for the quarter are out and generally speaking they were as expected but that is not necessarily a fundamental positive as the expectations for the earnings had been pushed down over the past few weeks in order for the reports not to disappoint. By the same token, lowered expectations usually mean that things are not as good as they should be, as such, the response to the reports has been tepid.

This coming week the market will be receiving a slew of important economic reports starting on Tuesday with the 20-city Case/Schiller report and Consumer Confidence, GPD-Adv on Wednesday, the ISM Index on Thursday and the Jobs Report on Friday. With the exception of the 20-city Case/Schiller report, all were better than expected last month and if that trend continues this week the bulls will get further ammunition to continue the uptrend. By the same token, some of these reports such as the ISM Index are at levels that are pivotal and should the reports come in lower than expected it could cause strong disappointment to be seen. In a market that is considered highly overdone to the upside, such an event could generate a strong round of profit taking and a new corrective phase.