DOW Friday closing price - 15961

The DOW generated yet another new all-time high weekly close on Friday, as well as a close on the highs of the week, suggesting further upside will be seen next week. The new high this past week was mostly achieved without any additional positive fundamental news to support the extra buying, meaning that it was likely technical in nature due to the magnetism of the 16000 level drawing the bulls forward.

The DOW has now seen 6 weeks in a row of green closes and it should be mentioned that in the last 22 months, 6 has been the magic number prior to some type of correction occurring. There have been 2 occasions over the past 4 years, back in May 2010 and in November 2011, when the index rallied for 8 weeks in a row but those occasions did have special circumstances as the first one was when the index was rallying up to test the 200-week MA and the second time was after the index had broken above the 200-week MA and had just finished successfully testing it. As such, the probabilities seem to suggest that a red close is likely to be seen this coming week.

On a weekly closing basis, there is no resistance until psychological resistance is reached at 16000. On a daily closing basis, there is no resistance above. On a weekly closing basis, support is minor at 15072 and decent to perhaps strong at 14799/14810. On a daily closing basis, very minor support is found at 15750, minor at 15593 and at 15545. Below that, minor support is found between 15409 and 15413, minor again at 15168, and decent between 14960 and 14996.

The DOW is now reaching a psychological resistance area at 16000 where selling of some consequence is likely to be found. It is also doing it at a time of the year where participation in the market decreases, meaning that there will be less buyers in the market than normal. In addition, and contrary to other years, the traders will be facing once again the Debt Ceiling crisis that will resurface in January, also meaning that there are strong obstacles ahead that should prevent the bulls from being aggressive.

On a negative note though, the DOW is reaching what is likely to be a top of a long-term channel that is achieved by drawing a line between the 2000 high and the 2007 high that does connect at 16100. It should also be mentioned that using the daily closing highs this year, starting with the 15409 daily closing high in May and ending with the 16568 daily closing high in August, a channel line can be drawn that connects for a third point up at 16075, giving the index 2 different but clearly defined rally points around the 16100 level that are likely to be aggressively used by the traders to take profits and likely short the index, especially given the fact that the index has built no support on the way up since the 14719 low was made on October 9th. This means that the risk/reward ratio for a bulls is presently extremely bad. In addition, it has to be expected that the Democrats and Republicans will once again have strong disagreements in January when the Debt Ceiling issue comes up once more and that selling, in anticipation of the disagreement, is likely to begin sometime in the next few weeks, if not sooner.

To the downside, the DOW will now show minor general support at 15700 that includes the previous intra-week highs at 15658 and at 15709. Further but minor support is found between 15522 and 15545 that incorporates the general support usually seen at the 15500 level. It can therefore be assumed that the 15500-15545 has become an important pivot point that if broken would likely signal a drop back down to the 15000 level, which now also includes the 200-day MA, currently at 15000. By the same token, there seems to be no fundamental catalyst on the immediate horizon that can trigger a selling or profit taking binge this coming week.

The DOW is likely to see some volatility this week as the traders normally get involved on both sides when a major psychological area is reached. Nonetheless, the momentum is strong to the upside so the first course of action for the week is likely to get up above the 16000 level so the bulls can claim a moral victory. It should be mentioned that the VIX saw a low of 11.99 this past week and the $12 level has proven to be a strong support for the past 6 years. During the past 8 months there have been only 2 previous drops below 12.00 with a low of 11.30 in March and to 11.84 in August and both of those drops lasted only 1 day before the index popped back up above 12. On both occasions, within a few days thereafter the index had climbed above 15.00. A close in the VIX above 14.00 would be a buy signal, meaning that the index would see an increase in volatility and increase of volatility usually means a top is near.

NASDAQ Friday closing price - 3985

The NASDAQ generated a new 13-year high having broken above the recent high at 3966 seen 4 weeks ago and rallying up to 3985 where the index closed on Friday. The index closed on the highs of the day/week and further upside is likely to be seen next week with 4000 as the minimum objective. Four of the five main stocks in the index (PCLN, AMZN, NFLX, and GOOG) all made new all-time high weekly closes and closed on the highs of the week, also suggesting further upside will be seen this coming week.

On a negative note though, the NASDAQ is now reaching a level of not only decent psychological resistance at 4000 but of previously strong resistance from 1999/2000 between 4192 and 4303 that is likely to require a major upgrade in the fundamental outlook for the economy to break above. In my opinion, such outlook is not possible at this time.

On a weekly closing basis, minor resistance is found at 4069 and decent to perhaps strong resistance is found between 4234 and 4252. On a daily closing basis, there is no resistance above for the past 12 months. On a weekly closing basis, support is very minor at 3919 and at 3791 and very minor again at 3689. Below that, decent support is found at 3589. On a daily closing basis, support is minor at 3907and minor to perhaps decent at 3857. Below that, there is minor support at 3804 and at 3789. Decent to perhaps strong support is now found at 3677.

The NASDAQ is now reaching levels of important resistance from 13 years ago when the Dot.Com rally was occurring. The area between 4100 and 4300 managed to stop the rally on the way up to 5132 and stopped the bounces on the way down, meaning it is an area of great importance, especially when there is nothing compared to the Dot.Com euphoria occurring at this time. It should also be mentioned that in 1999, the initial run to 4192 that ended the first week of January 2000 and that resulted in the first decent correction back down to 3711, started at 2810. The rally the index is experiencing right now started in November of last year at 2816. The price situation is too similar to be ignored.

The NASDAQ did break out on Friday out of a mini flag formation on the weekly chart with the flagpole being the rally from 3650 to 3966 and the flag being the trading range the past 3 weeks down to 3855. The objective of the flag is 4171. It is interesting to note that the next weekly close resistance from January 2000 is at 4169, meaning that the flag objective is not only viable but likely to be seen. It should also be mentioned that the 4300 high seen on that occasion was not seen the first time the index got above 4000, but the second time after the index got up to 4199 and dropped back down to 3888. The same kind of scenario is likely to be seen now.

It should also be mentioned that fundamentally things are very different now, especially considering the Dot.Com era was unique and not likely to be replicated at this time, meaning that rally highs in those years can be used as resistance levels of consequence but not necessarily upside objectives. The simple fact that the NASDAQ has reached another important psychological resistance at 4000 could be enough to stop further upside at this time. Simply stated, the 4000 level is the only upside objective that was highly likely to be reached. What happens between 4000 and 4300 is yet to be written.

To the downside, the NASDAQ shows 2 close-by levels of support that will be watched by the traders closely. Getting above the previous daily high close at 3952 and doing it in a flag-breaking fashion means that a close below 3952 at this time would give a failure-to-follow-through signal, also meaning that the flag objective would be negated. The second and more important support is at the previous week's low at 3855, which also represents the 50-day MA, currently at 3840 but moving up daily. These are the 2 levels of support that are important at this time.

The NASDAQ is likely to see the top of the 4000 demilitarized zone at 4030 next week. If the bulls are able to get the index above that level there is no resistance above until the 4069/4071 level is reached. The 4071 level is a very minor intra-week resistance from the year 2000 and 4069 is the next weekly close resistance found. An intra-week break above 4071 should cause the index to rally up near 4192 before strong selling is found. Nonetheless, the probabilities do not favor the index generating a weekly close above 4069 at this time.

Expect further upside in the NASDAQ this week but also expect volatility to increase and 2-way trading to be seen.

SPX Friday closing price - 1798

The SPX had a strong spike up type rally and a close on the highs of the week suggesting further upside will be seen this coming week. The index is likely to reach its upside objective at 1800-1805 this week and having had 6 weeks in a row of green closes, as well as no support being built for the last 152 points, the probabilities are high that further upside, if any, will be limited.

The SPX is now 200+ points above its previous highest levels ever (1550-1576) and considering that new all-time highs generally generate a rally of 15% before a correction is seen back down to the previous highs, the index should not get much above (if any) the 1812 level, which is 15% above the previous intra-week high at 1576 seen in 2007.

On a weekly closing basis, there is no resistance above. On a daily closing basis, there is no resistance above. On a weekly closing basis, there is minor support at 1690 and minor again at 1667. Below that level, minor to decent resistance is found at 1632 and decent at 1592. On a daily closing basis, support is very minor at 1767, minor to decent at 1747, minor at 1725, minor to perhaps decent at 1698/1700. Below that, there is decent/copious support between 1676 and 1685.

In researching the chart this weekend, I noticed that on a weekly closing basis, the SPX rallied exactly 680 points from the low weekly close at 683 seen at the bottom of the recession on March 2009 to the high weekly close seen on April 2011 at 1363. That particular high caused the index to correct 18% back down to 1123 over a period of 4 months. With the close on Friday, the SPX has rallied 675 points from that low at 1123 during the past 30 months and a close next Friday at 1803 would be exactly the same rally amount as seen between Mar09 and Apr11 before the big correction occurred. It is important to note that for the past 3 weeks I have mentioned an upside objective of 1804 and it did not include this bit of information. This now gives the chart evaluation that a major top is close at hand even more credence.

To the downside, the SPX shows minor support at Wednesday's low at 1760. Further minor support is found at 1752 and a bit stronger at 1746. Below 1746, the index shows no support until the 100-day MA, currently at 1700 is reached. With the index having generated 6 weeks in a row of green closes and only a very minor intra-week low at 1746 that was below a previous weeks low, it does suggest on the weekly chart that a break of 1746 would take the index down to the previous all-time high weekly close at 1667 seen in May.

The probabilities favor the SPX going higher this coming week but finding indicative selling starting to come in at 1800. The chart points mentioned above does suggest the index will close in the green next week at the 1803/1804 level. Nonetheless, a red close next Friday is not out of the question. Either way, it is likely that the index finds itself at a level that where the bulls will have much difficulty in generating additional buying interest.

The indexes continued higher this past week mostly based on momentum and the magnetism of the psychological levels above. Nonetheless, with the index near important upside objectives and the economic picture still just muddling along, it is difficult to believe that further upside will be seen based only on continued Fed stimulus. In addition, it is already being anticipated that by March of next year that the stimulus will start to taper down and that should start being factored into the price levels seen right now.

There were no economic reports of consequence last week but this week Retail Sales comes out on Wednesday and already there is talk that retail numbers will be disappointing and that Holiday season purchasing may be worse than expected. With the end of the year approaching, markets in a heavily overbought condition, and the Debt Ceiling issue in January once again likely to start coming into view, there is little reason for the buying to continue as it has been seen the past 6 weeks.

It is likely that 1 more up week will be seen as there also have been no reasons for the traders to rush into profit taking or even shorting the market. In addition, last week's strong rally should generate some follow through on a weekly closing basis this week. Nonetheless, from here on in the probabilities of a red or green week are probably 50-50, with any news likely to help the bears more than the bulls.