DOW Friday closing price - 15258

The DOW was under sell pressure this past week as the government shutdown deadline approaches. The index closed on the lows of the week suggesting further downside will be seen this coming week if no extension to the deadline is agreed upon.

The red weekly close in the DOW on Friday has caused a bearish Head & Shoulders formation to be built on the weekly closing chart with the left shoulder 15354, the Head at 15658, and the right shoulder at 15451. The neckline is the line drawn between June close at 14799 and the August close at 14810. A break of the neckline would offer a 13964 weekly close objective.

On a weekly closing basis, decent resistance is found at 15451 and decent to perhaps strong resistance is found at 15658. Above that level there is no resistance until the psychological resistance is reached at 16000. On a daily closing basis, resistance is minor to perhaps decent at 15409 and strong between 15658 and 15676. On a weekly closing basis, support is very minor at 15115 and decent to perhaps strong at 14799/14810. On a daily closing basis, minor support is found at 15115, minor to decent support at 14960, decent support at 14776 and decent to strong support at 14659.

The action in the DOW for this coming week will likely be decided no later than midnight Monday evening, meaning that if the parties fail to reach an agreement on the extension, it is likely to cause the index to break down and perhaps reach the objective of the H&S formation within a week or two. By the same token, even if the parties agree on an extension, it is not likely to be enough of a positive to generate much of a rally since the big decision on raising the debt ceiling is to come on October 15th. An extension will likely cause the index to stay for the next 2 weeks within the parameters of the H&S formation (14810 to 15451 based on a weekly close).

The DOW is likely to be totally dominated by this issue for the next 2.5 weeks with the charts only playing a part in determining the trading range to be seen based on what develops and not being an integral part of the decision making process. Economic reports and technical issues are not likely to have much of an impact during this period of time.

Nothing is expected to be decided over the weekend as the Democrats and Republicans have generally not been able to come to an agreement in the past on anything until the midnight hour. As such, it is expected that further weakness will be seen Monday morning with the DOW likely to get down at least to the 15180 level if not all the way down to the 15000 level. By the same token, Monday's action is not likely to be indicative of what will happen on Tuesday unless some decision is arrived at during the day (highly unlikely). A rally in the DOW above Thursday's high at 15387 would likely mean some agreement has been found on the extension.

With trading in the DOW dependent on this issue alone, the traders are not likely to do anything unexpected at this time.

NASDAQ Friday closing price - 3781

The NASDAQ was able to maintain its uptrend, having generated a new 13-year green weekly close in spite of the red seen in the other indexes. By the same token, the bulls tried repeatedly to make new all-time highs on a daily closing basis, above the high made the previous week at 3789, but fell short having had an intra-day high of anywhere between 3782 and 3795 every single day of the week but not been able to close above 3789.

Contrary to the other indexes though, the chart of the NASDAQ suggests that the uptrend will continue further for the next 2 weeks if the parties agree to extend the debt ceiling until November, as what was being worked on over the weekend. The bears have been unable to break even very minor support levels in spite of all the selling pressure being seen in the other indexes, suggesting the buying interest in its main stocks such as AMZN, PCLN, GOOG, and NFLX continues unabated.

On a weekly closing basis, there is no resistance found until old resistance (year 2000) is found at 3860. On a daily closing basis, there is very minor resistance at 3789 and then nothing for the past 12 months. On a weekly closing basis, support is very minor at 3689 and decent at 3589. On a daily closing basis, support is minor at 3761, at 3715 and at 3692, very minor at 3654, minor at 3600 and decent at 3578/3579.

For the past 7 trading days, the NASDAQ has fallen only .02% having seen a close at 3789 on September 19th and a close on Friday at 3781. Nonetheless, during the same period of time the DOW has fallen 2.7% (15676 to 15258) and the SPX has fallen 2% (1725 to 1691), likely meaning that the traders are hedging their bets with the NASDAQ versus the other indexes. For the next 2 weeks while the debt ceiling issue remains in question this setting will continue, making the index stocks unattractive short-sellers versus any other stocks.

The NASDAQ has no resistance above until 3860 is reached and even then that resistance is old (from 2000) and considered minor, meaning that there really is little to stop the index from getting up to the 4000-4200 level if the market rallies. To the downside, the NASDAQ generated a low on Monday at 3745 that represents pivotal support as no other support until minor support at 3700 is found. No decent support is found until 3600 is reached.

The NASDAQ continues to be the "only" index that is on a short-term uptrend and therefore will be the choice index to buy should the problems with the debt ceiling be put aside or resolved.

SPX Friday closing price - 1691

The SPX gave an ominous sign on Friday when the index generated a red weekly close, making the previous week's close at 1709 into a perfect double top on the weekly closing chart (when combined with the close seen the last week of July). With the SPX being the most respected/followed index, the double top if confirmed with another red close next Friday would be a very negative sign that a long-term top may have been found. A subsequent close below the most recent low weekly close at 1632 would "seal the deal".

The SPX closed on the lows of the week, suggesting further downside will be seen this coming week. The probabilities are high that further weakness will be seen on Monday as the deadline for the debt extension is Monday at Midnight and no resolution is expected until the last minute, if then.

On a weekly closing basis, there is strong resistance at 1709. Above that level there is no resistance. On a daily closing basis, there is very minor resistance at 1698, decent at 1709 and strong at 1725. On a weekly closing basis, support is minor at 1667, minor to decent at 1632 and decent at 1592. On a daily closing basis, support is minor at 1685, minor again at 1667 and at 1650, minor once more at 1642 and decent at 1630.

With the double top on the weekly closing chart, the SPX is now the "decider" for the traders. The NASDAQ is saying higher and the DOW is saying lower and therefore the traders will look to the SPX as the mediator in this fight.

To the downside, the SPX has important but minor support at 1676. If broken, there is no previous intra-week support until minor support is reached at 1639 and decent to strong support found at 1628. It is unlikely that these 2 lower supports will be broken unless the debt ceiling issue fails to get resolved. By the same token, a break of 1628 as well as a weekly close below 1632 would be a strong sign that not only a major correction is coming but that a downtrend may have begun.

To the upside, it is likely the SPX will rally back up to at least the 1709 level should the debt ceiling extension be resolved on Monday night. Intra-week rallies could be higher but it is not likely that the bulls will be successful in generating a weekly close above 1709 until after the debt ceiling issue is resolved on October 15th.

The probabilities favor the SPX continuing to trade between 1676 and perhaps 1725 for the next 2 weeks as the debt extension is likely to be resolved Monday night.

For the next 2.5 weeks, the market will be totally dependent on the Debt Ceiling issue and not on anything else. If the debt ceiling issue is not resolved the market will react in a strongly negative fashion and all of the gains for the year could dissipate in a few weeks. The first issue to be addressed is on Monday when a short-term 2-month extension to the debt ceiling is to be decided. The Democrats have stated they want to have Obamacare defunded but on Saturday they were able to get a bill that would at least postpone the implementation of Obamacare for a year. The bill is now going to the Senate for a vote on Monday but even if they are successful in agreeing to it in the Senate (unlikely), the probabilities favor Obama vetoing the bill, meaning that unless Obamacare gets implemented on October 1st, the probabilities of a government shutdown is high.

If by any chance the Democrats are able to get an extension without the Obamacare postponement, they will still face a bigger hurdle on October 15th when raising the debt ceiling on a permanent basis will need to get voted on. Both the Democrats and Republicans seem to be imbedded in their party stances and unless one or the other caves in, the debt ceiling is not likely to be raised, meaning the government will not only cease to operate but the U.S. will start to fail on their debt obligations. There have been 38 prior times in the past when the debt ceiling was an issue and each and every time the parties found a way to get it resolved. Nonetheless, never have the parties been so at odds with each other and there is a real threat that this time a resolution will not be found.

Raising the debt ceiling is not a solution that will help the economy, simply a way to keep things as they are and have been. Not raising the debt ceiling will cause un-measurable damage to the economy and the market. The stakes are high but the foes are steadfast, likely meaning the market is facing a "showdown at the OK corral".