DOW Friday closing price - 16493

The DOW generated a key reversal on the monthly chart, having erased 10 weeks of gains in just 4 days, having dropped 473 points this past week and having gone above the previous month's high at 16978 (got up to 17138) and then closing below last month's low at 16673. The monthly key reversal has only been seen twice in the last 17 years and the first time it happened was in the year 2000 when the 11750 high signaled the top of the uptrend that had started 2 years previously from 7378. That key reversal caused the index to get into a 33 month downtrend that ended in October 2002 at 7197. The second time the index generated a key reversal was in March 2005 but that key reversal only generated 1 additional down month before the uptrend resumed. By the same token, on that occasion the index has been in a sideways trading range for 15 months and the key reversal took the index back down to a major psychological support level at 10,000. That same scenario is not present now, suggesting that the key reversal could be signaling a longer protracted correction if not the beginning of a downtrend.

The drop in the DOW this past week broke all daily and weekly closing support levels built this year and caused strong damage to the chart. By the same token, then bears were unable to close the index below the previous all-time high weekly close seen in December at 16478, suggesting the bears are not yet in total control of the index and that a tiny door is still open for resumption of the uptrend in September/October as it was in 2011. Nonetheless, the index closed near the lows of the week and further downside below last week's low at 16437 is expected to be seen this week.

The drop in the DOW was even more indicative of a corrective phase occurring (rather than a long term top) because there was no negative catalyst to generate the sell interest. The action did not create any panic selling or strong increase in put buying and though the VIX rallied it did not break the 6 month resistance level at 17.50 (got up to 17.57), the 200-week MA at 17.80 or more importantly the 100-month MA at 21.00. Simply stated, the action this past week, though negative, is not yet the kind of action that suggests a "long-term top" has been found.

To the upside, the DOW will now show minor intra-week resistance at the 100-day MA, currently at 16640. The resistance there is also somewhat pivotal since it does include the previous intra-week all-time highs from December and April at 16588 and at 16631. Further and likely a bit stronger daily close resistance will be found at the "general" resistance area at 16700 that does include 1 previous all-time daily closing high at 16715 and one previous important daily closing low at 16731. It is evident that if the bulls can generate a daily close above 16731 that much of the selling interest will abate. That is the level that would suggest that this break of support was just "one more opportunity" to buy the dip, as has been seen so often during the past 2 years.

To the downside, the DOW will show support at the "general" support area at 16300 that does include 2 decent previous intra-week lows April and May at 16312 and 16341 as well as the 200-day MA that is currently at 16325. The 200-day MA has not been broken except for a minor 1-day break on 2 occasions for the past 21 months, meaning that the bulls will likely be depending on that line holding up once again. A convincing break of the line though, would likely be signal of consequence that this is a similar correction to the one seen in 2011 when the index corrected 20% from the highs. Further support of consequence will be found at the 16000 level and again at the 15700 level. A daily closing low below 15698 would likely bring in panic selling.

The probabilities are high that the DOW will be getting down this week to the 16300 "area" and that a bounce will occur with the 16600-16700 level as the upside objective. The time frame on this scenario could be anywhere from 1-3 weeks. Nonetheless, a daily close below 16300 or a daily close above 16700 will likely dictate further movement in the direction broken and could be indicative as to whether this is just a correction that will last a couple of months or a top for a longer term downtrend.

NASDAQ Friday closing price - 4352

The NASDAQ finally succumbed to the sell pressure that has been seen of late in the DOW and engendered a strong down move that caused the index to make a new 6-week low while breaking all the support levels built during this period of time. In addition, the index generated a small sell signal on the weekly closing chart on Friday, having closed below the most recent low weekly close at 4415, and also caused the previous weeks' close at 4449 to become a successful retest of the 4485 14-year high weekly close, likely suggesting that a temporary top has been found and that correction is under way. It also needs to be mentioned that the index now show a double top on both the daily and weekly intra-week chart at 4485 that looms ominous, especially if the bears can generate a failure to follow through signal on the weekly closing chart next Friday by closing below the previous 14-year high weekly close seen in March at 4336.

The NASDAQ closed near the lows of the week and further downside below 4324 is likely to be seen. By the same token, the action seen this past week was not totally decisive as the bulls were able to generate enough buying on Friday to close the index in the middle of the day's trading range, meaning that the first course of action for the week could be to the upside, if and when the bulls can find some reason to rally the index at the beginning of the week.

To the upside and on a daily closing basis, the NASDAQ shows indicative resistance between 4357 and 4363 which was the previous 14-year high daily close (4357) made on March 5th and the low daily close for the past 6 week (4363) made on July 17th. A confirmed daily close above those levels will take much of last weeks' negative thoughts away and likely generate a move back up to test the gap that was generated on Thursday between 4444 and 4430.

To the downside, the NASDAQ shows minor support at 4284 that is likely to be seen at some point this week. Nonetheless, the stronger support is found between 4239 and 4246 that was an important support/resistance/pivot point area between January and March. In addition, the 100-day MA is currently at 4255, giving that area quite a bit of meaning. Further support is found at the 200-day MA, currently at 4175, that like the DOW has not been broken for the past 21 months.

It is evident that the NASDAQ continues to be the index the traders are watching as the weakness seen this past week did not do any strong damage to the chart, other than to signal that a temporary top is in place. In addition, the index still has to go down quite a bit to match the levels of support the DOW will be facing this week, meaning that much more selling is needed to put the index in a position to generate some panic selling and a profit taking binge.

By the same token, the NASDAQ does show some important levels to watch this week with the 4357/4363 daily close resistance level above and the 4336 weekly closing support below. Closes above or below those levels will likely give the traders a stronger idea of what to do from here. Probabilities favor the bears.

SPX Friday closing price - 1925

The SPX made a new 8-week low and in the process broke all the support levels built over the past 43 trading days, suggesting that the 1991 high seen the previous week is likely to remain the high for some time. By the same token, the damage done to the long-term chart was minimal as no levels of important support and/or previous resistance were broken, meaning that the index could go substantially lower and still remain with a positive outlook.

The SPX closed near the lows of the week and further downside below last week's low at 1915 is likely to be seen. The 68 point trading range seen this past week was the largest trading range seen in the past 14 months and only the second largest since the 2011 period when the index corrected 21.7% in value, suggesting that there is a good chance the index is now in the same type of corrective phase.

To the upside, the SPX will show resistance at 1955, which is where the 50-day MA is currently located and is also an intra-week high of some consequence from June 9th. Further resistance, but minor in nature, will be found at 1968. Stronger resistance is found at 1985 and at the all-time high at 1991.

To the downside, the SPX shows minor support at the 100-day MA, currently at 1911, but that line has been broken 4 times during the past year, meaning that it is not likely to be seen as important support. Further support is found at the 1900 level and then nothing of consequence until the 200-day MA is reached, currently at 1858. The 1850-1860 area is also an area of many previous intra-week lows as well as congestive trading, meaning that it is unlikely to break, at least not the first time down. On the other side of the coin, the weekly chart shows no support of consequence until the 50-week MA is reached, which is currently down at 1830, suggesting that if the stock continues lower and closes below 1900 that the line could become an intra-week target.

The SPX is a bit of a key since it is the index with the least close-by support below, meaning that if the selling continues as strong as it was last week that the index will lead the rest of the indexes down. If that does occur, then it will be clearer that the market is at least in the seasonal correction and that is may mimic the one seen in 2011.

All the important earnings and economic reports are now out and the traders will not have anything of consequence to look at for at least another month. The economic reports this past week all came out better than expected and yet they were not sufficient to stimulate any new buying, causing the traders to take profits and the market to fall and make new 6-week lows. The probabilities are now high that the seasonal correction has started, much like it did in 2011, and the only question left to be answered is how much of a correction will be seen.

The selling this past week, though, was not as strong as it might have been under the same circumstances in the past, likely because of the Fed support of the market the past few years has incurred a strong belief among traders to "buy all dips" as Sugar Daddy will be there to support the market. Some normal indicators, such as put option buying and the VIX, were not as decisive as they might have been, meaning that there are still questions that need to be decided upon this coming week.

Probabilities favor the bears this next week but if the bulls can generate enough buying to close in the green next Friday, most of the selling pressure seen last week will vanish. As such, this coming week will again be pivotal.