DOW Friday closing price - 15115

The DOW generated a second red weekly close in a row supporting the idea that the top to this rally has been found and that the seasonal correction is now under way. More importantly, the all-time high at 15542 was tested successfully on Tuesday with a rally up to 15521 after the Consumer Confidence number came in at the highest level in the past 5 years, meaning that the chartists now have a decent resistance level that has proven to be effective in stopping the rally in spite of good news.

The DOW ended up breaking the support built over the past 2 weeks at 15180 and did close on the lows of the week suggesting that further downside will be seen this coming week unless the important economic reports due out on Monday (ISM Index) and on Friday (Jobs report) are much better than expected. The probabilities do not favor the bulls as the economy is in a soft patch that is not likely to be fixed overnight.

On a weekly closing basis, there is minor to perhaps decent resistance at 13354. On a daily closing basis, there is minor resistance at 15324, minor again at 15354 and decent at 15383. On a weekly closing basis, support is minor at 14547 and then nothing until minor support is found again 14093 and again at 13981. On a daily closing basis, support is very minor at 15083. Minor support is found a 14887 and a bit stronger at 14687. Below that, very minor support is found at 14599 and minor to decent at 14537.

The bulls in the DOW had every chance to make new highs this past week, due to the economic news that was better than expected, but they failed. In turn, the bears were finally able to break a previous low of some consequence for the "first time" this year, suggesting that the bulls are no longer in control. The start of the "sell in May and go away" adage seems to have finally kicked in as all of this happened on the last day in May. The break of support could be negated this coming week if any of the 2 important economic reports come in much better than expected. Nonetheless, if the negation does not occur by Friday, the probabilities of the index getting into a full-scale correction of 1000-1600 points will increase.

To the downside, the DOW does show any weekly support until 14380/14440 is reached but even then that support is considered minor to decent at best. The chart does suggest that a drop all the way down to last year's high weekly close at 13610 could occur over the next few weeks if the support at 14380/14440 is broken. On the daily chart, shorter term but minor support is found at 14865, which was a previous high daily close of some consequence as well as where the 50-day MA is currently located. The probabilities are high that level will be reached this coming week if the ISM Index report on Monday is not much better than expected. Stronger support will be found between 14440 and 14380 which is an area the index spent 6 weeks at during March and April and is also a level where the 100-day MA is currently located. A break of that level and it is straight down to the 200-day MA, currently at 13815. On a very short-term basis, some support can be expected at the 15000 demilitarized zone (14970-15030).

To the upside, the DOW shows minor daily close resistance between 15275 and 15294, minor to decent resistance at 15387, and decent resistance at 15409 which is the all-time high daily close. On an intra-week basis, resistance is found at 15521 and at the all time high at 15442.

The DOW broke support at 15180 on Friday in spite of the rally early in the day off of the much better than expected Chicago PMI report and the better than expected Michigan Sentiment. The inability of the bulls to keep the index up throughout the day after those reports came out positive suggests the traders are now turning short-term bearish. The bulls will need ISM Index report on Monday to come in much better than expected (50.9) and it could happen as the Chicago PMI on Friday was expected at 49.5 and the report came in at 58.3. If such a surprise occurs on Monday, the bears would likely lose the edge they gained this week. A report under 50 would be strongly bearish for the market and likely cause strong selling to occur.

The DOW this coming week will be at the mercy of the important economic reports. By the same token, there is one additional factor that is now in play and that is the Fed Stimulus program which is likely to be cut if the economy continues to show any kind of growth and likely to be kept as-is if the economy shows contraction. Such a dichotomy of thinking makes it very difficult at this time to predict the reaction of the traders to the economic reports.

It should be mentioned though, that the DOW was the index hit the strongest this past week and that could be very indicative that the traders feel a strong and longer term correction is on the horizon as this is the index where the safe money goes to play and unwinding of those positions could mean the correction phase will not be a short one.

NASDAQ Friday closing price - 3455

The NASDAQ had an inside week (lower highs and higher lows) and only closed 4 points below the previous week's close, suggesting that the tech sector of the market remains resilient. Nonetheless, the index did generate the second red weekly close on Friday and near the lows of the week also suggesting that follow through to the downside will be seen this coming week, placing the stock at risk of giving the first sell signal in the last 6 weeks.

The NASDAQ has now built a strong top formation having tested on the daily chrt the 14-year high at 3531 successfully on 2 occasions this past week, each lower than the previous one, meaning that the traders will "require" positive fundamental stimulus to prevent the index from heading lower this coming week.

On a weekly closing basis, there is minor resistance at 3498 and at 3526. On a daily closing basis, there is minor resistance at 3488/3491 and at 3498/3502. On a weekly closing basis, support is decent at 3202/3206 and minor at 3161. On a daily closing basis, support is minor at 3328, very minor at 3296 and minor to decent at 3200. Strong support is found at 3166.

The NASDAQ, unlike the other 2 indexes, has not broken the support built over the last 2 weeks (at 3422) so it will be the index the traders watch closely for clues as to what the overall market will do. A break of that support likely cause the index to drop an additional 50 points immediately as there is no support until the gap at 3344/3370 is reached. With this index still holding above its recent low, the doors are open for the economic reports this week to re-stimulate the market in spite of what the other indexes did on Friday.

To the downside, the NASDAQ shows minor support at 3370 which is where the last gap between 3344 and 3370 is found. The gap area is always considered support in bullish trend cases. Should the gap be closed, the next area of support is the 50-day MA, currently at 3335, which also has a good chance of holding up since the 50-day MA is currently at that level and also considered a strong line of support in bullish trends. Should the index generate a daily close below 3300 (the previous daily closing high of consequence), a strong case can be made for further downside to the 3154/3200 area where support is decent to strong. It is also important to note that the 200-day MA, currently at 3150, is a line that should not be broken unless the trend is broken and there is no reason to believe that at this time. It should be noted that on the weekly chart, no support is found until the 3200 level, making a drop down to that level a high possibility if the seasonal correction has started.

To the upside, the NASDAQ shows that the 3531 high was tested successfully twice this past week with rallies up to 3514 and 3491 which then resulted in breaks below the previous day's low the day after. Having had the high being tested twice successfully does suggest the 3531 high, and the 2 retests at 3514 and at 3491, are now resistance levels that are not likely to get broken without a strong positive fundamental change or a decent correction to get rid of the overbought status.

The NASDAQ will be a key index this week as a break of the support at 3422 could trigger a domino-like reaction that could easily take the index down to the 3200 level, which would be over a 300 point drop. The index has been holding up fundamentally as stocks such as AAPL, GOOG, and PCLN are still rallying with the latter two at all-time highs. The tech sector has been strongly supported as of late and until that sector starts seeing the kind of selling the other sectors saw this past week, the market will remain viable to the upside.

SPX Friday closing price - 1630

The SPX confirmed the reversal seen the past week with a second red weekly close in a row. The index closed on the lows of the week suggesting that further downside will be seen this coming week with 1600 as the minimum downside objective. The index did generate a sell signal on the daily closing chart after closing below the low daily close for the past 2 weeks at 1648.

The SPX should have outperformed the other indexes this past week after Japanese and European banks pledged additional stimulus support to those beleaguered areas. Nonetheless, the news was short-lived as the index was only able to generate a one-day rally that wasn't even successful in closing on the highs of the day. It seems that good news is no longer helping the index as it has done previously this year.

On a weekly closing basis, resistance is minor at 1667. On a daily closing basis, minor resistance is found at 1654, minor to decent at 1660 and decent between 1667 and 1669. On a weekly closing basis, support is minor at 1558, decent between 1553 and 1555, very minor at 1515, and minor to perhaps decent at 1500/1503. On a daily closing basis, support is minor to perhaps decent between 1593 and 1597, minor again between 1552 and 1553 and strong between 1541 and 1545.

The confirmation of the reversal week in the SPX does suggest that the seasonal correction has started and in looking at the past 3 seasonal corrections that were 207, 294, and 156 points, it does suggest the index could drop at least down to the previous all-time weekly closing high seen in 2007 at 1561, which would be a 126 point drop from the highs.

To the downside, the SPX shows minor support on the weekly closing chart at 1600, minor to perhaps decent support between 1536 and 1555 and then nothing until the 50-week MA is reached presently at 1470. On a daily closing basis, very minor support is found at 1626 and then nothing until minor to perhaps decent support at 1593/1597, which does include the always important 50-day MA. Further minor support is found at 1582 and the stronger support is between 1541 and 1545 which does include the 100-day MA. Additional support is found at the 200-day MA, currently at 1490.

To the upside, the SPX has tested the 1687 high successfully on 2 occasions this past week with a rally up to 1674 and 1661. Both of those levels are now considered minor resistance. The 1650 level will now be considered resistance as well as the index shows 2 low daily closes at that level and a close above that level would negate the break. By the same token, the index would need to close above 1661 to generate any new chart buying.

The SPX now shows the 1650 level to be an important pivot point, mostly on a closing basis. Having broken that level on Friday, the probabilities are high that the index will get down to the 1600 level this coming week. It should be mentioned though, that the 200 60-minute MA is currently at 1628 and that line has not been broken for the past 6 weeks, meaning that if the index does not follow through to the downside on Monday, after the ISM Index report comes out, that a rally could ensue. By the same token, a break of that line on Monday would suggest that 1600 will be seen by the end of the week.

Strong signs that the seasonal correction has started were given this past week when 2 of the indexes broke the lows seen the past 2 weeks, which is the first time that has happened since February. It does suggest the bulls have lost the edge they have had most of the year and that a correction will occur in spite of the Fed still being supportive of the market. By the same token, this coming week the 2 most important economic reports of the month will come out with the ISM Index on Monday and the Jobs report on Friday and those reports can be catalytic, meaning that if much better than expected that the correction could be cut short.

On the other side of the coin, the traders are interpreting Fed Chief Bernanke's comments a week ago as a sign that the Stimulus program now has a finite end and that the Fed could start cutting Bond purchases immediately if the economic reports show that the economy continues to grow, even if it is at a slow pace. It is almost a catch-22 situation inasmuch as good economic reports will likely mean less Fed support while bad economic reports will do the opposite. By the same token, the Fed is limited in what more they can do so if the economic reports are bad there is little they can do to help, meaning that the probabilities now favor the downside no matter how the reports come out. It does seem the action this past week makes that idea very clear.