DOW Friday closing price - 15302

The DOW generated a reversal week having made a new all-time high and then closing in the red and near the lows of the week. The index has only had 3 reversal weeks in the past 4 years with 3 of those generating corrections of 1644, 1014 and 1303 respectively. The fourth reversal was just 9 weeks ago and that one did not generate any kind of a move down, but then again the index did close on that one in the upper half of the week's trading while the other 3, like the one on Friday, did close on the lower half of the week's trading range. It should also be mentioned that the 3 that did generate corrections of consequence were all facing the "sell in May and go away" adage as 2 of them happened in the last week of April and the third one the first week of May. The last reversal 9 weeks ago was the first week of April meaning it did not fit the pattern. With this reversal coming near the end of May, the probabilities strongly favor this being the expected seasonal correction.

The DOW did not receive any negative economic catalysts this past week as the economic reports that did come out were slightly better than expected. As such, the reversal this past week is likely to be more indicative as it came unexpectedly. The one possible catalyst was Fed Chief Bernanke leaving the door open for possible reductions of the Fed Stimulus program should the economy continue to get better but then again it was not a negative statement either. At these high price levels it isn't rare that the traders to consider locking in profits at the "slightest" hint of a change of Fed Strategy.

On a weekly closing basis, there is minor resistance at 13354. On a daily closing basis, there is minor resistance at 15354 and minor to perhaps 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 15232 and 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 DOW generated a key reversal on the daily chart on Wednesday with a new all-time high and a close below the previous day's low at 15387. The bulls tried to negate the reversal on Thursday and Friday, especially with the positive economic reports that came out both days, but could not even get the index to rally intra-day back up to Tuesday's low. The index did close near the highs of the day on Friday and the probabilities favor some rally on Monday above Friday's high at 15306. Nonetheless, resistance will be found at 15354 and at 15387 and if the bulls are unable to get above those 2 levels early in the week, the probabilities will favor renewed selling being seen.

It should be mentioned that in the 3 previous adage reversals in the DOW the index had a minimum of 4 weeks with lower highs and lower lows with all corrections lasting at least a total of 6-7 weeks. Nonetheless, there was one instance in 2011 where the index was able to hold above the previous week's low. With the ISM Index and Jobs report due out the week after next, there is a possibility that this coming week will be calm and that the index will stay above the low at 15180 as the traders await those reports. Nonetheless, the probabilities are now high that the index is now in the seasonal correction and that a move down of consequence will be seen over the next few weeks.

To the downside, the DOW does not show any weekly support until 14380/14440 is reached. On the daily chart though, the index shows very minor support at 15180 and at 15038. Further support is found at 14865, which was a previous high daily close of some consequence, at 14687 which was the low of the last minor 180 correction and at 14380/14444 which is where there is decent support that came from multiple lows there seen in March. Below 14380 there is no support until the previous all-time high weekly close at 14093 is reached.

To the upside, the DOW shows resistance at 15387, which is the all-time high daily close as well as the previous week's low prior to the key reversal seen last week and then intra-week resistance at the all-time high at 15542. On the intra-day chart, resistance is found at 15344 and at 15400.

The probabilities favor last week's key reversal being the beginning of the seasonal correction in the DOW. Already economists are predicting that the earnings for the next quarter are going to be lower so it is unlikely that traders will want to buy stocks at these prices until some type of corrective phase to get rid of the overbought condition occurs. The 2 reports due out the following week (ISM Index and Jobs Report) could make a difference but the ISM Index has been coming in lower the past 3 months and is already anticipated to come in lower and below the 50 mark (anticipated to come in at 49.5), suggesting there will not be a positive surprise.

The only thing that was keeping the DOW heading up was momentum and that momentum was stunted this past week and it will take positive fundamental information to regenerate that momentum, as such, the probabilities favor the downside. The only question is how much and how soon.

NASDAQ Friday closing price - 3459

The NASDAQ had a key reversal on the daily chart on Wednesday and a classic reversal on the weekly on Friday chart having made a new 13-year high and then going below the previous week's low and closing on the lows of the week and in the red. The double reversal is a clear sign that the index has found a top to this rally and that a correction phase has begun.

The NASDAQ has been the leader to the upside and to the downside for most of the past 4 years and that was also true this past week when it fell more than the other indexes, which in turn does suggest that this is a true correction and not a 1-week phenomena. It should also be mentioned that the index generated the correction from a previous area of resistance at 3535 which was a minor high seen in October 2000 and from which a drop of close to 500 points occurred within a few weeks thereafter. The index got up to 3531 this past week, likely meaning that the high seen in the year 2000 high did have some chart effect on the index. By the same token, it should be mentioned that in the year 2000 the index was on the way down at the time and weak, which is not the case now.

On a weekly closing basis, there is minor resistance at 3498 and at 3526. On a daily closing basis, there is minor resistance 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 finds itself in an untenable position having rallied the last 5 weeks 377 points without any kind of pullback or pause, meaning that if this reversal is confirmed this coming week that the index could easily drop 10% in value in a short period of time.

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 3315, which also has a good chance of holding up since the 50-day MA is also considered a strong line of support in bullish trends. Should the index generate a daily close below 3300, 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 3145, 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 has very minor resistance at 3467, minor resistance at 3485 that includes the 50 60-minute MA, currently 3480, at 3502 which is the 13-year high daily close and lastly at 3531 which is the intra-week high. The index did close on the highs of the day on Friday and the probabilities are high that further upside will be seen on Monday with 3467 being the first level tested. The probabilities favor the index getting up to the 50 60-minute MA currently at 3480. Such a rally would be sufficient to generate a retest of the 3531 high but not high enough to re-energize the bulls into buying more. By the same token, if the index fails to get up to that level and the 3467 high stops the rally and then a break below last week's low at 3422 occurs, the selling will increase strongly and exponentially.

Overall, it likely does not matter how high the NASDAQ goes this week (as long as it does not get above 3531) because with the reversals that were seen this past week it is highly likely that the gap area at 3370 will be seen. The gap area will be a big key for the traders as closure of that gap will likely insure that the index is in the seasonal correction that is seen every year. The probabilities do favor the gap holding up the first time it is tested which could mean a low this coming week around 3370 followed by a rally as the traders wait for the ISM Index and Jobs report the following week with which to make a fundamental decision as well.

Last week's trading range in the NASDAQ was 109 points and that could mean that if 3370 is the low for this coming week that the 3480 level where the 50 60-minute MA is currently located could be the high.

SPX Friday closing price - 1649

The SPX generated a reversal week having made a new all-time high at 1687 and then closing in the red and near the lows of the week suggesting that further downside will be seen this coming week. No support of any consequence is seen on the weekly chart until the 1600 level is reached and even then that support is mostly psychological rather than based on previous action at that price.

The SPX did close on the highs of the day on Friday suggesting that the first course of action for the week will be to the upside. If the index "closes" in the green on Tuesday the immediate bleeding of the reversal will stop but it will make the 1649/1650 level, based on a daily closing basis, an important pivot point the rest of the week.

On a weekly closing basis, resistance is minor at 1667. On a daily closing basis, minor resistance is found at 1658 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 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.

To the downside, the SPX shows minor support on the weekly closing chart at 1588, minor to perhaps decent support at 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. To the upside, the SPX does show minor daily close resistance at 1658 and decent at 1667/1669.

The SPX does show daily close resistance at 1658 that is likely to be seen at the beginning of the week. Nonetheless, if the index is unable to close above that level the selling will resume and likely with strength. A close below 1650 is likely to generate an additional move down to the 50-day MA, currently at 1592, which is a line that is highly likely to be tested if the index is in a corrective phase. Additional support is also found from a couple of previous high daily closes at 1593 and at 1597, making that level a natural magnet should the index start heading lower.

The probabilities favor the bulls in the SPX trying at the beginning of the week to undo the negative reversal but failing to take the index high enough to generate new buying interest.

After weeks of failure by the bears to start the very reliable "sell in May and go away" seasonal correction it does seem like it is finally here. The bulls were successful in pushing the start day to the very end of May which has only happened once before in the last 10 years when it happened in 2009 when the start of the correction was pushed back to the second week in June. Nonetheless, on that occasion the indexes were just starting to recover from the recession making the late start explainable as the buying interest then was probably as strong or stronger as seen now. Simply stated, the probabilities are high that last week's action was the start of the seasonal correction.

On the other side of the coin, there are many important economic reports scheduled to come out over the next 2 weeks that could cause the correction to be cut short if they are substantially better than expected. This coming week the 20-city Case/Shiller report, Consumer Confidence, the 2nd estimate of GDP, Personal Income and Spending, Chicago PMI, and Michigan Sentiment are due out and next week the traders will receive the very important ISM Index and Jobs report, suggesting that the length and strength of the correction is still somewhat dependent on fundamental news.

By the same token, the action seen this past week did was chart indicative and decisive (something that has not happened this year) and that means the economic reports "have to be" much better than expected to stop the correction from continuing. It should be noted that there have been few positive surprises in the economic reports this year and therefore the probabilities do not favor the bulls reversing the action until the correction is complete.