DOW Friday closing price - 14009

The DOW generated the second highest weekly close ever, having closed below the all-time high weekly close at 14093 but above all other closes. The index did close on the highs of the week and a stab at the all-time intra-week high at 14198 is likely to be seen this coming week, especially since there seems to be no strong negatives to stop the traders from attempting the retest of those highs.

By the same token, the DOW is extremely overbought and reaching levels that will likely require "additional" positive fundamental news to break, and there are none of those scheduled for the next 3-4 weeks, suggesting that technically the index will likely see some type of profit-taking correction from this level. It should also be mentioned that GDP came in negative this past week, suggesting that growth is not happening and further upside will be difficult to accomplish without further help.

On a weekly closing basis, resistance is major at 14093. On a daily closing basis, there has been no previous daily closing high in the last 12 months. On a weekly closing basis, support is minor at between 13232 and 13275. Below that, support is minor at 12849 and decent at 12588. On a daily closing basis, support is minor to perhaps decent at 13860, very minor at 13511, and minor to perhaps decent at 13413. Below that level, support is minor to decent at 13326/13328, minor at 13077 and decent to strong at 12936.

In looking at the 2007 chart of the DOW when the 14198 all-time high was made, there are many similarities that bear mentioning. In 2007, the index started the rally from a low of 12517. This time the rally started from 12471. In 2007, the time frame for the rally was 9 weeks and the index started the rally with a spike low that closed in the red. This time the time frame has been 12 weeks and the rally started with a spike low that still closed in the red as well. In 2007, there were a total of 3 red and 6 green weekly closes in that rally with 5 green closes in a row at the end of the rally. This time there have been 3 red and 9 green weekly closes with the last 5 being in the green. There were no negative catalysts in 2007, the buying simply dried up above 14000 after the bulk of the third quarter earnings reports came out. The bulk of the earnings reports for the quarter are now out, and no scheduled economic reports that could be catalysts left. Will the buying dry up this time around as well?

On one last note, it should also be mentioned that in 2007 the DOW had generated a mini correction just prior to the last run up that saw a low of 13021 causing a rally to the highs of 1177 points. On this occasion, the index also had a mini correction just before this last run up that had a low of 12883 and that means the rally so far, using Friday's high at 14019, has been 1136 points. It does suggest that the top to this rally, if the rallies end up being about the same, could be just 40-50 points away. Based on this comparison, it can be stated that the bulls have had a tougher time than in 2007 as the rally has taken 12 weeks whereas in 2007 the rally took only 9 weeks. In addition, the bulls have had more positive catalysts this time around but longer time to accomplish the rally above 14000 and that does suggest there are more chart reasons to sell now than perhaps in 2007.

In following the reasoning given above, the DOW can expect a correction of consequence to occur from these levels. In 2007, the index fell to 12724 just 7 weeks after the 14198 high was made. It should be mentioned that the negative fundamentals that caused the last recession to occur did not start coming out until December 2007 and that means that the correction to 12724 was mostly chart oriented and not fundamentally based. There is also one additional reason why the index should correct at this time and that is a strong seasonal tendency for the market to start a correction in February that normally does not find a bottom until April. Simply stated, there are a lot of reasons why the DOW is likely to start moving down soon.

To the upside, the DOW will find decent intra-week resistance at 14021 and major resistance at 14198. To the downside, the index has not built any support of consequence on the weekly chart until the recent low at 12883 is reached but on the daily chart the low seen Thursday at 13860 will serve as minor support as well as a short-term pivot point. Further minor support is found at 13500 and a bit stronger between 13300 and 13361.

The DOW has now reached the all-time highs but is the economy in better shape than it was in 2007? In addition, the rally up to this level has come on the heels of reports after reports that were better than expected, as well as the euphoric effects that were seen when a possible chaotic situation (the Fiscal Cliff) was prevented. That kind of a rally seems more of a fortuitous coincidence than a true reason for higher prices. The run of good fortune is over, at least until the next set of economic reports of importance come out in 3-4 weeks, and that leaves the traders with nothing new and tangible to generate new buying. Profit taking seems to be in order now, especially since no support of consequence has been built for the last 1000-1200 points.

NASDAQ Friday closing price - 3179

The NASDAQ accomplished quite a bit this past week having broken above the decent intra-week resistance at 3171 as well as closing the breakaway gap at 3178 that had been open since September. In addition, the index closed just 4 points below the 13-year weekly closing high at 3183 that was made in September, meaning that another green close next week by more than 4 points could generate a new round of technical buying and a resumption of the long-term up-trend that had been stalled for the past 6 months.

The NASDAQ is facing a tough battle this coming week inasmuch as the general market has not been leading the rally this time around and the index still has an double top to contend with on the daily chart at 3195/3196. By the same token, some of its "key" stocks, such as NFLX and GOOG, are on a major runs and its number #1 stock, AAPL, is $250 below its all-time high made in September, suggesting that if AAPL gets rolling back to the upside that the index could easily go substantially higher.

On a weekly closing basis, there is major resistance at 3183. On a daily closing basis, resistance is major at 3183. On a weekly closing basis, support is minor at 3000 and decent at 2960. On a daily closing basis, support is minor at 3142, at 3130, and at 3110. Below that level, support is minor to decent at 3091 and at 3044/3048.

The NASDAQ will be the key index on Monday as a close above 3183 (4 points above Friday's close) will be considered a major breakout, as well as renewal of the uptrend and leadership of the market. With the DOW still being 189 points from its all-time high and the SPX still having major resistance for the next 60 points higher, it will be up to the NASDAQ to give the first clue this week.

To the upside, the NASDAQ shows a double top on the intra-week chart at 3195/3196. On a daily and weekly closing basis, strong resistance is found at 3183 and on a weekly closing basis minor to decent resistance is also found at 3205 (from the major weekly closing low seen in May 2000). Further resistance "might" be found at 3250 but it is not from any previous intra-week highs or from any MA lines, it is from a channel the index seems to be in, using the highs seen in March and September and the lows seen in June and November. The channel is perfectly formed and likely to effective if the index does get above 3196. Strong trends often transform into less steep but still positive channels for a period of time before a major top is found. The chart of the NASDAQ suggests the index is in such a channel and that the top of the channel will be reached on this rally, if and when 3196 is broken. By the same token, if the channel scenario is valid, no further upside would be seen for months to come.

To the downside, the NASDAQ does have some problems as no support of consequence has been built on the intra-week chart until the bottom of the channel mentioned above is reached, down at 2845. The daily chart does show a lot of minor support levels every 10-30 points starting at 3133. Nonetheless, none of the minor support levels are likely to offer enough support to stop the index, should it start heading lower, until 3076/3080. Even then, the support at 3076/3080 is at best decent and if the index gets down to that level the last major gap between 3021 and 3076 might prove to be enough of a strong magnet that the traders would choose to close the gap. If that happens, the 200-day MA, currently at 3000, would then be the immediate downside objective. If all of that happens and the index drops those 200+ points, the probabilities of the index dropping an additional 155 points down to 2845, would be higher.

In looking at the chart of the NASDAQ, and looking at the momentum seen in the index market as of late, I would venture to say that the NASDAQ will break above 3196 and head up to the 3250 level this coming week. It is likely that many traders will consider this another major breakout, but the channel scenario is valid and likely to be correct. As such, should the index get up to 3250, I would become a strong seller.

SPX Friday closing price - 1513

The SPX extended its recent strong rally having closed convincingly above the minor resistance from Dec07 at 1504. The index did close on the highs of the week suggesting further upside will be seen this coming week with 1523 as a possible immediate upside target. The 2007 charts do suggest the index could get up to at least 1555 and as high as 1576, but the fundamental picture of the financial industry this year suggests that the index will fail to reach those levels fundamentally and that the highs seen in the year 2000 between 1517 and 1530 will likely stop the index at this time.

The SPX was the laggard this past week suggesting that the interest in taking financial stocks higher is waning. In fact, in looking at the charts of GS, JPM and MS I did find that they are all at strong resistance levels that are not likely to get broken without some additional fundamental help and with their earnings reports already out, it is unlikely that will happen. As such, it would not be surprising to see this index begin to lag even more this coming week.

On a weekly closing basis, minor resistance is found at 1536, decent resistance at 1552 and major resistance at 1561. Nonetheless, if you go back to the year 2000, decent resistance is found at 1520. On a daily closing basis, no resistance above is found for the past 12 months. On a weekly closing basis, support is minor at 1440 and decent to perhaps strong at 1402. On a daily closing basis, minor support is found at 1498 and again at 1465/1470. Below that level, minor support is found at 1457 and at 1433. Decent support is found at 1428 and strong support is at 1402.

It is interesting to note that the SPX has closed every single week for the past 5 weeks on the high of the week but for the first time in the same period of time the index generated 3 red daily closes in the same week. It is evident that some selling of consequence is being seen at the 1500 level and with no further economic or earnings reports of importance scheduled for another 3-4 weeks, the probabilities favor the index coming back to 1500 even if intra-week rallies take the index higher.

To the upside, the SPX will find resistance starting at 1523. Above 1523 resistance from 2007 will be found at 1540, at 1555, and at 1576. Nonetheless, from Sep2000 resistance will be found between 1517 and 1530. To the downside, some minor intra-week support will be found at 1484 and at the previous high weekly close at 1465. Nonetheless, below 1465 no support of consequence is found until the 1400 level.

The SPX is likely to start showing some volatility this week with 1500 as the immediate downside objective. Rallies should start finding stronger selling between 1523 and 1530. It is expected that further upside will be seen this coming week but the upside could be as little as 4 points (1517) or as much as 17 points (1530). The index is not likely to continue with the leadership of the market at this time.

The bulls got all the fundamental support they needed to continue the uptrend this past week but the question that will be asked this coming week is "now what?". The indexes are all reaching levels of important resistance and no additional fundamental help is likely to be found. With a strongly overbought condition and no support levels of consequence having been built on the way up, the bulls will be looking at strongly negative risk/reward ratios that will only be accepted until the momentum ends. Simply stated, the bulls need to continue on upward every day until the major resistance levels are broken. Any pause in the upward action at this time is likely to be met with a strong profit taking binge.

By the same token, it is not likely that traders will turn into bears overnight without some catalyst. As such, a period of time likely to be anywhere from 1-2 weeks will probably be seen where the trading will be mostly sideways while the traders convince themselves that further upside will not be seen. At the end of that period of time, the profit taking scenario will begin.

There are no important economic reports due out this week and no earnings reports that are likely to be catalysts. Technical trading is likely to rule the trading with support/resistance levels playing the major role.