DOW Friday closing price - 16553

The DOW generated a positive reversal week, having made a new 10-week low and then closing in the green and near the highs of the week, which suggests further upside above last week's high at 16553 will be seen this week. Nonetheless, the reversal was not all that impressive as the bulls did have a tough time on Friday getting the index above last week's close and even when it happened it was only 60 points, likely meaning the buying was tentative. On a positive note though, the index has had 6 minor corrections over the past 2 years and 2 of them generated a new high and 4 of them a new all-time high, including the fact that 4 of them came off of a positive reversal weeks as the index had this past week.

On a negative note though, the DOW has only corrected 4.8% on this move down and each of the previous 6 minor corrections were at least 6% and a couple were 10%, which would suggest that either the index "is heating up for a new and strong extension of the uptrend" or this one is different and might "break the 2-year mold".

The rally seen in the DOW this past week was not unexpected since the index has tested the 200-day MA successfully on 3 occasions over the past 2 years and did test the line again this week with a drop down to 16333 (200-day MA currently at 16335) and a strong bounce on Friday. With no negative catalysts having been seen, this drop/correction might just end up being one more opportunity to buy the dip as has so often been seen since 2011. Certainly the action seen since the previous week's close was suggestive that the bears did not have control of the index as every time they tried to put the "nail in the coffin", they were unsuccessful.

To the upside, the DOW will begin to encounter some minor intra-week resistance between 16588 and 16631 and then stronger around the 16700 level since a previous daily closing high and a previous daily closing low, both of some consequence, are found at 16715 and at 16734 respectively. A close above 16734 would leave the index without any resistance of consequence until the 17000 demilitarized zone is reached.

To the downside, the DOW will now show pivotal support at 16333 (16368 on a daily closing basis). A break of the 200-day MA would likely be indicative that this correction is going to continue and that further downside is forthcoming. 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.

In last week's newsletter I did predict the DOW would bounce from the 200-day MA and generate a rally up to the 16600-16700 level. That outlook is still highly valid for this week. Nonetheless, with the positive weekly reversal seen and the 2-year history of positive reversals generating new all-time highs, the 16700 level (16734 on a daily closing basis) has begun to take additional meaning as a pivot point. It should be mentioned that in 2011, the year I have compared with what is happening this year, the index made a new 3-year high in May, corrected 10%, and then retested the high successfully in July with a rally up to 123 points below the previous high, followed by a 20% correction in Aug/Oct. Nonetheless, if that same high/retest of the high/correction is to occur now, the time frame is becoming skewed as the beginning of the strong correction would not likely occur until the latter part of August, suggesting that a 20% correction would likely run short of time before the new earnings quarter begins in October.

The outlook for a strong correction to occur in the DOW over the next 2-3 months ran into some "snags" this week and now the bulls have a window this week where they can gain control once more. The 16300 to 16700 is now the level to watch in the DOW as a close above or below that trading range will likely be meaningful.

NASDAQ Friday closing price - 4370

The NASDAQ also generated a positive reversal week, having made a new 7-week low and then closing in the green and near the highs of the week, suggesting further upside above last week's high at 4395 will be seen this week. In addition, the index gave a sell signal on the daily closing chart on Thursday, having closed below the previous 14-year high daily close seen in March at 4357 (closed at 4335) but that sell signal was negated on Friday when the index closed above that level again, suggesting that the break of support may have been a "1-day wonder" and that the bulls have not yet lost any meaningful step in their bid to keep the uptrend alive.

The NASDAQ is still showing a bearish inverted flag formation that was not negated by Friday's positive action, with the bottom of the flag at 4321 and the top of the flag at 4395. As such, this week remains pivotal for both the bulls and the bears because if the flag is broken to the downside continuation of the recent short-term downtrend will be seen and if the flag is negated, the uptrend might resume.

To the upside and on a daily closing basis, the NASDAQ shows minor resistance at 4382 and intra-week resistance at 4395. Nonetheless, above 4395 there is no resistance whatsoever until the weekly gap between 4430 and 4444 is reached. Daily close resistance of some consequence is found at 4440 and then nothing until the 14-year highs are reached which offer daily close resistance at 4462, at 4473 and at 4485. By the same token, if the bulls are able to close the index above 4462 the probabilities will rise strongly that the uptrend has resumed and that a new high above 4485 will be seen.

To the downside, the NASDAQ will once again show daily close support between 4357 and 4363 and then new support from the daily closing low seen this past week at 4336. By the same token, if the index gets below the intra-week low at 4321 this coming week, the inverted flag formation will offer at 4243 objective. Minor support is found at 4284 but that support is very minor. The 4250 level remains an important pivot point support. Further support is found at the 200-day MA, currently at 4185, that like the DOW has not been broken for the past 21 months.

The NASDAQ is once again the index the traders will be watching, especially since it is the index with the closest and probably more indicative support and resistance levels. A break below 4321 would be bearish while a break above 4395 likely bullish. It should be mentioned that the opening on Monday could be indicative of direction since the index does show some decent intra-week resistance at 4371 and having closed on Friday at 4370 the first 30 minutes of trading could be indicative of how the index will do the rest of the week. Evidently if the index opens lower and the bulls fail to take out the 4371 level early on Monday morning, the selling interest will likely come back.

The chart picture of the NASDAQ is unclear as of now though the action on Friday does suggest the upside is the most likely direction. By the same token, the possibilities of Friday also being a 1-day wonder to the upside are real.

SPX Friday closing price - 1931

Like with the other indexes, the SPX also had a reversal week to the upside but the reality is that the reversal was unimpressive as the index only closed 6 points above the previous week's close and did not break any resistance levels. The reversal was also not unexpected as the index does show the 1900 level as being not only psychologically supportive but was a level that in April and May proved difficult to break above and as such has to be considered somewhat pivotal support. Having seen a low this past week at 1904, the bounce seen was not unusual.

Nonetheless, the SPX has a chart picture that is totally un-indicative as the index finds itself 60 points from the all-time high but still 90 points from a support level of consequence, meaning that movement within that 150 point trading would remain without clear meaning.

To the upside, the SPX will show minor daily close resistance at 1938 and again at 1951, which does include the 50-day that is currently at 1955. Further but minor resistance will be found at 1968. Stronger resistance is found at 1985 and at the all-time high at 1991.

To the downside, the SPX now shows minor support at Thursday's close at 1909, which does include the 100-day MA, currently at 1914. Further support is found at the 1900 level and then nothing of consequence until the 200-day MA is reached, currently at 1863. 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 index continues lower and closes below 1900 that the line could become an intra-week target.

The SPX is currently the least indicative index of all as it has accomplished nothing of consequence to the downside but remains far enough from the recent high to prevent bulls from being aggressive. The 50-day MA, currently at 1955, seems to be a pivot point that if broken would likely bring in enough buying to resume the uptrend. Nonetheless, having closed 24 points away from that level on Friday, it does not suggest the bulls will be able to get much accomplished this week.

The indexes remain uncommitted to a direction at this time. The bears held the upper hand the past 2 weeks but failed to deliver the "killing blow" and now the traders are unsure of what to do. This week does not offer much in the way of economic reports help as the only report of any consequence due out is Retail Sales on Wednesday. Retail Sales has not had much of an impact the past few months and the expected number for this week is +.1% which is again a number that is unlikely to generate any new buying or selling.

The indexes did rally on Friday and that must be considered a positive since further movement to the upside is likely to be seen at the beginning of the week. By the same token, the rally was not unexpected as the indexes did reach a chart level from which automatic buying was likely to be seen, meaning that the rally itself did not accomplish much other than to say the market was not yet ready to go lower last week. The bulls though, did not do enough to the upside to turn the recent negative mood around, also meaning that the bulls have a lot more to prove before it can be said the uptrend is resuming.

Nonetheless, the chart trading ranges are shrinking in both directions and the probabilities continue to increase that something will be decided soon, perhaps and even likely this week. By the same token, the economic picture does not suggest the uptrend will resume so it is more about one of the sides (bulls and bears) proving their point technically than it is about anything else. With the summer doldrums in place and the seasonal correction still viable, it has to be said the bears likely have the slight edge.