DOW Friday closing price - 14514

The DOW extended its run into new all-time highs this past week closing an additional 117 points above last week's close. In addition, the index made a new 17-year record having closed in the green 10 days in a row (last year that happened was 1996). With no chart resistance above and the news continuing to come out better than expected, the probabilities favor further upside.

The 10-day run of green closes came to an end when the DOW generated a red close on Friday but the run of higher lows than the previous day continues unabated. The red close was minor in nature and probably considered more of a pause than a signal that the rally is encountering selling pressure, especially since the index closed in the upper half of the day/week's trading range suggesting further upside above last week's high will be seen this coming week, and probably on Monday.

On a daily and weekly closing basis, there is no resistance above. On a weekly closing basis, support is minor at 14093 and again at 14000. Below that, there is no support until minor support is found at 129398. Decent to strong support is now found at 12588. On a daily closing basis, support is minor between 13970 and 14030, minor to decent between 13860/13880 and decent at 13784.

The DOW is now strongly overbought on the daily and weekly chart with the daily RSI climbing up to 95 from the previous Friday's 69 number. The index has only been up to 95 once in the past 12 months and on that occasion (January 29) it did signal the start of a sideways trading period that ended up lasting 5 weeks. In addition, it should be mentioned that the RSI high seen on January 29 came after 14 days of rallying and last Friday was the 14th day of this present rally. Both rallies generated a small red close on the 14th day suggesting the same pattern could now be occurring. The previous 14th day high did not turn out to the high for the rally as the index traded as high as 90 points higher during the following 5 weeks but it did signal that the non-stop-one-way rally had come to a temporary end.

With the DOW trading in "uncharted waters" the traders are likely to depend more on the intra-day charts than on the daily and weekly charts to make short-term decisions. As such, the comments in this newsletter will have some of both.

To the downside and on the intra-day chart, the DOW did have a spike down on Friday negating the spike up that was seen on Thursday. It should be mentioned that for the past 14 days no down spikes were seen, likely meaning that the momentum to the upside is starting to wane. The index now shows a minor support on the 60-minute chart at 14470 and a stronger support at a double low built at 14411. In addition, the 50 60-minute MA is currently at 14435. If the traders fail to make new highs above 14539 in the first 30-minutes of trading on Monday the probabilities will increase that at least the 50 60-minute MA will be tested. Keeping in mind that Friday's low was 14470, a break of that support will be the first lower low on the daily chart seen in the last 14 days and that will cause the bulls to take notice. In addition, if the 14411 level of intra-day support is broken, there is no support on the intra-day chart until minor support at 14270. Keeping in mind that there is no support on the daily chart until the previous daily closing high at 14164 is reached, and on the weekly chart no support until 14093 is reached, a break below 14411 could generate a domino-like effect and a drop back down to the 14000 level.

To the upside, the DOW shows no resistance and will likely depend on what the SPX and the NASDAQ do with the resistance or objective levels those indexes have reached. If all indexes continue higher above the levels seen on Friday, the upside objective in the DOW would be at least the 14700 if not all the way up to 15000.

No selling or volatility of consequence has yet been seen suggesting the probabilities still favor the DOW continuing higher. This is especially true this coming week as there are no economic reports due out that could act as a negative catalyst and since the momentum is totally on the side of the bulls, further upside is the most likely scenario.

NASDAQ Friday closing price - 3249

The NASDAQ made another new 13-year weekly closing high this past week but the rate of ascent diminished as the index only closed 5 points higher than last week's close in spite of the fact the other indexes had stronger closes. In addition, the index technically generated a key negative reversal on Friday having made the new high but then closing in the red below the previous day's low, suggesting that a top may have been found especially since the upside objective at 3260 was reached.

The NASDAQ closed near the lows of the day on Friday and further downside below Friday's low at 3242 is likely to be seen on Monday. By the same token, the stock closed slightly above the mid-point of last week's trading range also suggesting there is a decent possibility the index will go above last week's high at 3260.

On a weekly closing basis, there no resistance until minor resistance is found at 3451 and at 3483. On a daily closing basis, there is minor resistance at 3258. On a weekly closing basis, support is minor 3183/3193 and minor again at 3163. Below that, resistance is minor to decent at 3000 and decent at 2960. On a daily closing basis, support is minor between 3183 and 3200. Below that, support is minor to decent at 3131 and decent to strong at 3116.

The NASDAQ generated the key reversal in spite of the fact that the #1 stock in the index (AAPL) had a strong up day on Friday. It should also be mentioned that the daily RSI number climbed up from 69 to 87 and that puts the overbought indicator at a level where some type of correction or at best sideways action should be seen. In the last 12 months the RSI number has only been higher twice before with 92 being seen in March and 90 being seen in August. The March RSI high did bring about a 400 point correction but the August high brought about a 10-day period of sideways action.

To the downside, the NASDAQ does show some minor support at 3229/3233 as those were the lows seen on Tuesday and Wednesday as well as being the low for the week. A break of 3229 will likely bring in some new selling at a drop down to the 3200 level that is considered an important pivot point. The index shows a gap between 3182 and 3200 that should not be closed unless the stock has found a short to mid-term top, meaning that a drop down to 3182 will weaken the chart substantially. In addition, the index has 2 previous highs of importance seen in September at 3195 and 3196 that should not be broken on a closing basis either, as a failure to follow through signal would be given. Below that level, there is no support until the 50-day MA, currently at 3145 is reached. Strong intra-week support is found at 3105.

The important chart point in the NASDAQ is the 3260 high that was seen this past week as that was the objective of a channel that started 1-year ago on March 27th at 3141. The length of time of the channel makes it a valid channel even though at this time it is still not a fully established channel as only 2 points are found on it. If the index is able to get and close below 3200, the channel will show 3 established points making it that much stronger.

The NASDAQ should see some weakness early in the week due to the key reversal seen on Friday. The 3229 level (20 points below Friday's close) will likely be tested early in the week and what the bulls are able to do there will likely determine what the index will do the rest of the week.

It should be noted that the 2nd point in the channel (seen in September) was at 3195 followed 5 days later with a high at 3196, which does suggest that the same thing could happen now with the index "treading water" with a slight downward bias during the week (like what was seen in September) and then getting back up to the 3260/3261 level by Friday or the following Monday and then beginning the down move. It should be mentioned that from the 3195/3196 high seen in September a drop of 386 points ensued over a period of 7 months. The possibilities of something similar to that occurring this time are high.

Expect the index to have a slight bearish bias at the beginning of the week but not break support levels, and then rally back up at the end of the week to generate the kind of a double top that was seen in September. That is the most likely scenario under the present trading conditions.

SPX Friday closing price - 1560

The SPX continued to look strong this past week as the index was able to get above the important intra-week high at 1555 seen in the year 2000 as well as in July 2007. Nonetheless, the index failed to close above the all-time high weekly close at 1561 though the index traded above that level twice during the day on Friday. The failure to generate a new all-time high weekly close, especially when the DOW has already done so and the NASDAQ has accomplished at 13-year high could suggest the traders are still not totally convinced the markets are healthy enough to head higher. The SPX is definitely the one index that if a new all-time high is made would be a convincing argument that the market has shrugged off the last recession and that the bull trend will continue the rest of the year. A failure here would likely have the opposite effect.

The SPX did close near the highs of the day/week and further upside (at least on an intra-week basis) has to be expected with the all-time intra-week high at 1576 as a possible upside objective. By the same token and using the weekly chart, having closed near the highs of the week does also suggest that a higher close will be seen next Friday and if that happens by more than 1 or 2 points it would be considered a breakout of importance.

On a weekly closing basis, resistance is major at 1561. On a daily closing basis, no resistance above is found for the last 12 months. On a weekly closing basis, support is minor at 1515, and minor to perhaps decent between 1500 and 1503. Below that, resistance is decent at 1440 and decent to perhaps strong at 1402. On a daily closing basis, support is very minor at 1530 and minor to perhaps decent between 1495 and 15.02. Decent support is found at 1487.

The SPX has moved straight up for the past 11 days without any dips (lower lows than the previous day) and does find itself with an RSI of 92 which is the second highest RSI in the past year having seen 93 in January. In addition, a case can be made that the index might also be in a channel (like the NASDAQ) using the previous lows seen during the past year and drawing a parallel line using the starting high seen last March. The channel does not have as much validity as the one in the NASDAQ because there is no second high point of reference. Nonetheless, the importance and strength of the resistance levels that are being encountered, as well as the clear channel in the NASDAQ, does provide enough reasons to believe the channel could be valid.

To the upside, the SPX chart shows major intra-week resistance at 1576 and on a daily closing basis at 1565. On a weekly closing basis, the resistance is at 1561. Having closed on Friday at 1560 and near the highs of the week it is highly likely that the resistance levels will be tested this coming week.

To the downside, the SPX does have some potential problems if selling appears as the index has shown higher lows for the past 11 days meaning that no support has been built since the last dip at 1501 occurred. Any weakness shown at this level could take the index down 60 points in a fast manner. A dip of that consequence would weigh heavily on the index as it is unlikely that a new set of positive circumstances that created this recent move up will be seen again, meaning that making new all-time highs, if the index fails here, would be a difficult task. It can be said, the bulls in the SPX are "committed" to making new all-time highs because if they fail at the same place for the third time in 13 years it would be close to impossible to overcome the chart negatives which would come out of that.

The rally in the indexes has taken on the look of a runaway freight train that is unlikely to stop until the fuel runs out (Fed stops stimulus and low interest rates) or the train crashes (bubble bursts due to an unforeseen catalyst). Nonetheless, if there is a stop point to this rally the probabilities favor it coming this week as the indexes are all strongly overbought, one is at a strong long-term resistance level and one at a valid upside objective based on a clearly defined channel. In addition, there are no economic reports due out this week that can be catalytic to either side meaning that the bulls must keep the momentum going to the upside by "re-hashing" all the positive news that has come out over the past 2 weeks and there are reasons to believe the benefits of that information might be all "squeezed out". It should also be mentioned that the risk/reward ratio at these levels is extremely poor for the bulls.

It is also evident that the bulls have started to buy still depressed stocks (such as AAPL) and that likely signals what could be the beginning of the end since there are not many of those left. It will be harder every day to generate new buying to keep the rally moving forward if the pool of stocks that are good buys shrink. Many stocks have reached what is considered the high end of PE ratios in their industries and to keep the rally going the bulls will need to spread out into stocks that do not have the same kind of future outlook as what has been bought so far, meaning a lot more risk will need to be taken. I don't believe traders are at a point where they will be happy taking on "more" risk.

The momentum to the upside has been one of the main reasons the indexes have reached these lofty levels and there are no "clear" signs that the momentum has yet waned. Nonetheless, with each day the market rallies without a correction the risk increases and that in and of itself is likely to slow the momentum down. In addition, peaks and valleys are part of trading and it seems likely that the timing is close for a valley to occur. Keep a close eye on the VIX index which is now at 6-year lows and very close to the all time low at 10.05 (got down to 11.05 on Friday). A rally above the most recent high at 12.93 would mean some volatility has come back into the market and volatility is a good indicator that a top has been found.