DOW Friday closing price - 13981

The DOW generated a second red weekly close in a row but only by 11 points below the previous week's close and only 28 points below the 5-year high weekly close seen 3 weeks ago at 14009. As such, the red weekly closes seen do not suggest that new selling is happening but rather that profit taking is occurring at this lofty and resistance-strong level.

On a possible negative note though, the DOW has begun to take a back seat to the rest of the market inasmuch as buying for the last 2 weeks has been stronger in the other indexes. It is likely the index is slacking because "blue chip" stocks led the recent rally and may have reached high valuations, leaving the undervalued and less attractive stocks as the ones the traders are now keying on. Nonetheless, this does not bode well overall for the index as "new and/or additional" reasons to go higher must appear so the traders will continue to buy.

On a weekly closing basis, resistance is minor at 14009 and major at 14093. On a daily closing basis, there is minor resistance at 14009 and at 14018. Above that level, 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 at 13944 and at 13880 and minor to perhaps decent at 13860. Below that, there is very minor support at 13511, minor to perhaps decent at 13413 and minor to decent at 13326/13328.

The DOW has now traded sideways and in a very minor trading range for the last 3 weeks. It should be mentioned that the last 2 rally highs from which a correction of some consequence occurred came in a similar fashion inasmuch as the index traded sideways and in a narrow trading range before embarking on a correction of consequence. The rally top seen in March was at 13232 and the index traded between that level and 12919 (313 points range) for 4 weeks before heading down to 12710. One further rally occurred 3 weeks later up to 13338 before a 1300 point drop occurred. Almost the same thing happened in September when the index got up to a high of 13661 and then traded sideways with a low of 13367 (294 point range) for 4 weeks before dropping 1190 points. The trading range has been a lot smaller this time as the high has been 14038 and the low 13852, which is only 186 points, but the index has now traded in that range for 3 weeks, suggesting that if the same pattern occurs that another week of sideways trading will be seen before a correction begins.

It should be noted, though, that most of the tops in the DOW have come off of a new high reversal (new highs and a red close) and technically speaking the index did generate a reversal last week having gone up to 14038 (above the previous week's 14022) and then closing in the red. As such, there is a decent possibility that the same exact pattern mentioned above will not be repeated and that a correction will start this coming week.

It needs to be mentioned again that in 10 out of the last 12 years a seasonal correction has occurred starting in the last half of the first quarter of the year. Nonetheless, most of the corrections in the DOW (4 out of 10) have started in the 3rd or 4th week of February. In 2004 the high was made the week of 2/16, in 2005 the high was made the last week of the month, in 2007 the high was made the week of 2/19, and in 2011 the highs was made the week of 2/14. With Tuesday being the 19th of February, the chances of a correction starting this coming week are high.

To the upside, the DOW will find minor intra-week resistance at 14038 and major resistance at 14198. Some resistance may be found at the all-time high daily and weekly close at 14093. To the downside, the index has built some decent support over the past 2 weeks at 13850/13860. Nonetheless, below that there is no support until minor support is found at 13500. Stronger support is found between 13300 and 13360. It should be noted though, that general support will often be found 300 points below a major level, suggesting that 13700 may be some type of support as well. It should be mentioned though that no support is found on the weekly chart until 12883 is reached.

The DOW has now traded for 15 days in a narrow 186 point trading range 13852-14038). The sideways action is not surprising as it has often been seen in the past before a correction or a new rally occurs. Nonetheless, the small trading range with only very minor new highs being made is unusual as I could not find one instance in the last 10 years where the same thing happened. Another unusual thing is the fact the index has not gotten anywhere near the all-time high at 14198 or even the all-time high close at 14093, this being especially unusual since the bulls seem to be buying even the most minimal dips. The inability to rally up to those clearly defined upside objectives, as well as the small trading range, does feel like a "capped oil well" that could explode inwards (down).

The probabilities still favor the DOW going above the recent high at 14038 but even if that happens, it will probably be only by a few points as the 2 previous weeks the bulls were only able to make new highs by 12 and 16 points respectively. A lack of a new high this coming week could end up being the catalyst that is needed for the seasonal correction to begin.

NASDAQ Friday closing price - 3192

The NASDAQ made a new 13-year intra-week high last week breaking the triple top that had been built at 3195/3196 with a rally up to 3206. Nonetheless, the bulls were unable to make much of a statement as the index traded in a "very narrow" 24 point trading range and showed no follow through of consequence after a strong week the week before that ended with a close on the highs of the week. Such action should have caused much further upside to be seen as there was no intra-week resistance to stop the bulls from accomplishing more.

The NASDAQ did "technically" generate a key reversal week having made the new 13-year high but then closing in the red. Nonetheless, the reversal was "technical" in nature inasmuch as it was only by 1 point, which does not suggest it was a true reversal statement.

On a weekly closing basis, there is minor to perhaps decent resistance at 3205. Above that level, no resistance is found until the 3500 area is reached. On a daily closing basis, resistance is minor at 3198. Above that level, there is no resistance above for the last 12 months. On a weekly closing basis, support is minor at 3000 and decent at 2960. On a daily closing basis, support is very minor at 3186, minor at 3163 and decent at 3130/3131. Below that, there is minor support at 3110, minor to decent support at 3091, and at 3044/3048.

It is interesting to note that the high for the week in the NASDAQ was 3206. The index does show 3205 to be an important low weekly close from May 2000 but on an intra-week basis there is no resistance until 3500 is reached. As such, having stopped at 3205 on Wednesday and at 3206 on Friday should raise some eyebrows, suggesting the traders are well aware of the importance of that level and that selling is being seen there, likely making further upside even more difficult.

To the upside, the NASDAQ shows no previous intra-week resistance for the past 13 years until 3535 is reached. Nonetheless, as mentioned in the last newsletter, the index is likely trading in an up-trending channel with 3250 as the upside parameter, suggesting that resistance will be found there. To the downside, the index will now show some minor support at 3182 from Thursday's low. In addition, the index shows a gap between 3170 and 3177, meaning that the 3177 to 3182 area is short-term pivotal. Slightly stronger support, but still minor in nature, will be found between 3130 and 3136. Decent and somewhat important support is found between 3076 and 3080.

The bulls should have been able to push the NASDAQ up to or near the 3250 level this past week. The fact the stock stopped at 3206 could be meaningful due to the long term importance of 3205 as a major low weekly close. If the index is unable to get above 3206 early this week, the probabilities will rise that a top has been found.

SPX Friday closing price - 1519

The SPX continued to inch upward having generated another green weekly close on Friday, the 7th week in a row. Nonetheless, the index seems to be running "out of steam" as the last 3 weeks the total gain on a weekly closing basis has only been 6 points (.4%). In addition, the 7 weeks in a row of green closes suggests the index will be closing in the red next Friday since there hasn't been 8 green weeks in a row since the end of 2003 (9 years).

The SPX continues to trade in an area of strong long-term resistance between 1517 and 1530 that has been in place on 2 previous occasions with the first time being in the year 2000 and the second one in 2007, it is evident that to get through a resistance level of this strength there have to be better reasons to go further to the upside than in those past years. The fundamental picture at this time does not support that ideology.

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 and decent to strong at 1527. On a daily closing basis, minor resistance is found at 1521. Above that level, 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, very minor support is found at 1509 and minor at 1495. Further minor support is found at 1465/1470, at 1457 and at 1433. Decent support is found at 1428 and strong support is at 1402.

For the first 6 weeks of the 7-week green close run, the SPX closed on the highs of the week. Nonetheless, on Friday the close was in the middle of the week's trading range suggesting that no longer are the bulls "having their way" and that the selling is starting to slow down the rally. In addition, it must be noted that the index had a positive reversal week the previous week and should have generated a much stronger rally this past week than simply a 6 point rally above the previous week's high and a close only 2 points higher. It must be mentioned that with no support having been built on the way up and the index being strongly overbought, the moment the traders feel that no further upside can be accomplished, profit taking alone will take the index down strongly and fast.

To the upside and on an intra-week basis, the SPX faces resistance levels from 2007 at 1540, at 1555 and at 1576. Nonetheless, the resistance levels from 2000 are also likely to be in play at 1530 and 1553. To the downside, there is minor recent support at 1495/1498 and minor but old support from 2007 at 1485. Below that level, there is minor support at 1465 that includes the 50-day MA as well as the previous 5-year daily close high at the same price. Further and slightly stronger support will be found between 1425 and 1430.

With the SPX facing a high probability of a red weekly close being seen next Friday, the resistance levels growing in strength from here on in, and there being no economic reports of consequence scheduled this coming week that could fuel further fundamental buying by the bulls, the probabilities do suggest the traders will be looking to lock in their profits at some point this week.

All-time highs are always difficult to make since the fundamental situation needs to be healthy enough to support such a break. Fundamentally speaking, the U.S. economy still finds itself weak (GDP shows little or no growth) and more importantly "needing support" from the Fed to keep itself afloat and therefore not something that is likely to give the traders enough confidence to buy enough at this level to make new all-time highs. The Fed itself has unequivocally stated that until it feels the economy can stand on its own, it will continue to offer stimulus. Not "standing on its own" is a statement that says it all. It will always be difficult to "make things grow more" if you are still depending on "daddy" to keep the company afloat.

The market had trouble going higher this week as the rate of ascent has decreased substantially and in the case of the DOW it has begun to shrink having generated 2 red close weeks in a row. Europe is starting to stir again and any stirring that occurs there is more likely to be negative than positive. Earnings are mostly over for the quarter and economic reports of consequence are not due out for another 2 weeks and even then, it is unlikely those reports will be good enough to say that the economy is now healthy again. The market is overbought and many hedge and institutional funds have stated they are cutting back and not increasing their purchases.

The most likely period for the seasonal correction to begin is this coming week as the month of February, mostly the latter part of the month, has seen the start of most of the corrections over the past 12 years. The market looks tired and spent and without additional stimulus, the traders are likely to begin to take profits.