DOW Friday closing price - 15699

The DOW gave a sell signal on Friday having closed below the previous low weekly close at 15755. Nonetheless, the sell signal failed to be totally convincing since the index did not close below the previous all-time high weekly close at 15658, which in turn would have given a failure-to-follow-through signal as well. The close was on the lows of the week and further downside is expected to be seen, below last week's low at 15617, but the traders "left the door open" for a possible recovery if there are any positive surprises in the 2 major monthly reports that come out this week in the ISM Index on Monday and the Jobs report on Friday.

The DOW received the bulk of the selling this past week having dropped in value 1.2% where the other 2 indexes dropped .7% and .5%, likely because the index had 7 important earnings reports come out in which only 1 of them was a positive surprise. In addition, it is likely that the index also received the bulk of the selling because it was the only one that broke the support low seen in December.

On a weekly closing basis, there is minor to perhaps decent weekly close resistance at 16086 and strong resistance at 16458/16478. On a daily closing basis, there is very minor resistance at 15848 and again at 15928 and then nothing until minor to perhaps decent resistance at 16097. Above that level, there is minor resistance at 16257, decent at 16481 and strong at 16576. On a weekly closing basis, support is minor 15665, minor again at 15072 and decent to perhaps strong at 14799/14810. On a daily closing basis, there is minor support between 15658 and 15676, and then nothing until minor support at 15409.

The DOW closed near the lows of the week and further downside is expected to be seen if no positive fundamental surprises come out in Monday's ISM Index report. The downside objective is likely to be the 200-day MA, currently at 15475, which is a line that has only been tested once in the last 2 years and now is highly likely to be tested again. Chart-wise, there is no reason for the line not to get tested this week since last week's action was negative and an important support level was broken, both intra-week and on a weekly closing basis, meaning that without fundamental help the line is a magnet. By the same token, with the index now oversold and no news yet that would suggest fundamentally that the uptrend is over the probabilities are high that a bounce from that line will occur, and probably a meaningful one.

By the same token, the DOW is now likely into the seasonal correction usually seen in the first quarter of the year and the question now likely to be asked is whether this is the kind of correction that is simply a normal one from an overbought condition or a correction of consequence like what was seen in July 2011 when the index dropped 19.2% in price. The answer to the question is likely to be a little of both. In 2011 the index corrected a total of 7.2% in value the first time it went down and then generated a fast retest of the high 4 weeks later before entering into the stronger correction of 19.2% that found the low of the move 5 months later in October.

If the DOW drops down to the 200-day MA this week, it will have dropped 7% in value, thus possibly mimicking what happened in 2011 and with the index overbought and no retest of the highs yet seen, the probabilities would favor a fast run up (likely to the 16173 level) to retest the highs, as was done in May 2011. Simply stated, the probabilities favor further weakness this week, a close near the lows of the week, and then a rally back up over the following 4-6 weeks to retest the recent all-time high. Such a scenario would also fit in well with the "sell in May and go away" adage which could be the pre-cursor to a strong correction that could take the index down as much as 19%, like in 2011.

The DOW was totally unable to generate any meaningful rally this past week and it is unlikely that the ISM Index report on Monday will be of much help to the bulls. As such, the probabilities favor further downside at the beginning of the week with 15475 as the downside objective. Whether that level will be reached this week or the next is difficult to say since last week the index saw choppy trading with some green and some red days, suggesting that kind of action will continue. The 100-day MA, currently at 15795, is likely to be resistance this week, but likely to be seen, and with the index only having a 228 point trading range last week, it could be surmised that the trading range this week might be the same or lower, meaning that a possible low for the week could be 15564. Such a low would fit in well with the index heading lower the following week, down to the 200-day MA, and then turning around. By the same token, it must be mentioned that if at any time the index closes convincingly below the 200-day MA, the whole scenario outlined above might need to be scrapped.

To the downside, the DOW shows no previous support of consequence until 14844/14760 is reached. There is very minor support on the daily chart at 15522 and at 15405 but neither of those supports are likely to stop the selling seen recently, if and when the 200-day MA line is broken.

To the upside, the DOW will show minor resistance at the 100-day MA, currently at 15795, and again at the high seen last week at 15945. Further and a bit stronger resistance is found at 16058. The stronger resistance is found at 16174, which includes the 50-day MA, currently at 16145.

Based on the fact that the DOW did not show any rally power this past week, the probabilities favor more of the same being seen this week unless there are surprises in the economic reports (not expected).

NASDAQ Friday closing price - 4103

The NASDAQ confirmed the negative reversal seen the previous week with another red weekly close on Friday. Nonetheless, the confirmation was not as convincing as it should have been since the bulls were able to close the index in the upper half of the week's trading range, suggesting further upside above last week's high at 4136 could be seen this week, opening the door for the uptrend to resume.

Some of the tech stocks in the NASDAQ, such as GOOG, and NFLX continue to make new all-time highs though some of the other stocks such as AMZN and AAPL have retraced the recent rallies, leaving the door open for the index to resume the uptrend or start a correction of consequence, depending on which movement among the top stocks makes an impact.

On a weekly closing basis, minor to perhaps decent resistance is found at 4197. Above that level, decent to perhaps strong resistance is found between 4234 and 4246. On a daily closing basis, minor but perhaps indicative resistance is found at 4123, decent resistance is found at 4176, minor at 4218 and decent to perhaps strong at 4243. On a weekly closing basis, support is minor at 4062 and decent at 4000. Below that level, there is minor support at 3919, and at 3791, and decent at 3589. On a daily closing basis, support is minor at 4051 and decent at 3985/3993.

The NASDAQ gave a sell signal on the daily closing chart this past week, having closed below 4113. The index generated a green close on Thursday at 4123 followed by a red close on Friday, suggesting the 4113/4123 level may become decent resistance from both prior low closes and a prior high close. Nonetheless, for that scenario to be confirmed, the index would need to close below 4051 any day this week.

The NASDAQ has not yet tested the 13-year high at 4246 and that is likely to happen at some point. Nonetheless, the question remains as to whether the index will go down first, likely down to the 4000 level before a retest of the highs occur, or whether the index will rally for the retest first and then head lower. It should be mentioned that AAPL and AMZN, both of which got hit strongly this past week, are not far away from immediate downside objectives where bounces are expected, meaning that the probabilities slightly favor the index going above last week's high at 4136 first rather than below last week's low at 4044.

It should also be mentioned that the NASDAQ has not yet given a clear signal that the 4246 high seen a few weeks ago is the high of this move up. The 4246 area is a good resistance level that should not get broken, but that is on a weekly closing basis as the index could still get up to the 4286-4303 level intra-week without upsetting the overall top outlook. In fact, the recent high weekly close at 4197 does not fulfill the upside weekly close objective, meaning that it is still possible that this index will generate a new 13-year high before a strong correction occurs.

To the downside, the most indicative area of support is at 3976, meaning that if that level gets broken the NASDAQ will signal that a top has been found. Since the index has not yet shown ability to even get down near to that level, the probabilities do favor continuation of the uptrend with an intra-week high of 4286 as a possible upside objective to be seen sometime in the next 4-8 weeks. This scenario does not conflict with the DOW chart as there a 200 point drop is expected to be seen but then a rally for the following 2-6 weeks to test the all-time high is likely to occur. As such, the index could trade slightly lower for the next week or two with a short-term but limited bearish bias and then rally to the highs mentioned while the DOW rallies to test its all-time high.

SPX Friday closing price - 1782

The SPX generated the third red weekly close in a row but the bulls were able to keep the index from giving a sell signal on the weekly chart as the December low at 1767 was not broken. The index closed just slightly in the lower half of the week's trading range, suggesting that further downside below last week's low at 1770 is likely to be seen this week but with the 1767 level being 15 points lower, it is likely that negative news would need to come out for the index to break that support.

On a negative note though, the SPX was not able to generate any kind of a rally of consequence this past week and has built a bearish inverted flag formation that if broken (a drop below 1767) would offer a downside target of 1718. A drop down to that level could easily be seen since there is no support below 1767 until the 200-day MA, currently at 1708, is reached.

On a weekly closing basis, there is minor to perhaps decent resistance at 1805 and decent resistance at 1841/1842. On a daily closing basis, there is minor resistance at 1794, minor to perhaps decent resistance at 1808, minor at 1842 and decent at 1848. On a weekly closing basis, there is decent support at 1775. Below that level, there is minor support at 1690 and minor again at 1667. On a daily closing basis, support is minor at 1785 and 1781 and decent at 1775. Below that, there is minor support at 1747 and decent between 1700 and 1710.

The SPX is likely to be the key index this week since the other indexes do not show any clear intra-week support close-by. The index not only has an inverted flag formation that if broken would offer a 50 point lower objective but Wednesday's close at 1774 has built a double low on the weekly chart using the 1775 close seen on December 13th. A close below 1774, especially if followed by an intra-week break below 1767, would be a clear chart sign that further downside would be seen.

To the upside, the SPX chart is also clear inasmuch as the index has minor daily close resistance at 1794 and stronger at 1808. In addition, on an intra-week basis, the 50-day MA is currently at 1813, meaning that the index has a 46-point trading range between 1767 and 1813 that will be indicative in whichever direction a break occurs.

It should be noted that unlike the DOW, the SPX has not tested the 200-day MA since December 2012 (2 years) and therefore the probabilities do not favor the bears being successful at this time in causing the break that would take the index down to that line, at least not until the index tests the recent highs at 1850 successfully, causing new selling interest to appear. A rally up to 1813 would be considered a retest of the highs, meaning that the probabilities favor the index rallying up to that level first (likely this week), before the bears attempt the break of support.

In spite of the bearish inverted flag formation and the break that occurred in the DOW this past week, the bears have been inefficient in pushing the SPX down and after 3 weeks of selling pressure and an oversold condition, as well as some important economic reports due out this week, the probabilities now begin to favor a rally. It should be mentioned that a rally above 1798 would negate the inverted flag formation but then again the index could also be in the process of building a more bearish Head & Shoulders formation with the left shoulder at 1813, the head at 1850 and the right shoulder to be built. The neckline would be the line drawn between 1767 and last week's low at 1770. As such, the overall outlook for the index remains bearish with the only question likely being asked is when and from what formation will a break occur.

The indexes are still giving mixed signals with the NASDAQ leaning to the upside, the SPX wavering in the middle, and the DOW leaning to the downside. A mixed signals scenario usually requires a clear catalyst to break the impasse and this week there are 2 reports (ISM Index and Jobs Report), each of which could be a catalyst for movement.

The first 3 weeks of the earnings quarter are now over and most of the possibly catalytic reports are out. The signals given by these companies were also mixed with some coming in much better than anticipated and some coming in much worse than anticipated. It is evident that there has not yet been a clear picture drawn off of the earnings reports of what to expect for the immediate future.

The chart evaluations of the indexes this week do suggest some further weakness will be seen but not enough to cause a major break in the market, especially since technically speaking the recent important highs have not been tested successfully yet. With no catalytic negative fundamental news yet having come out, the probabilities do favor slightly a chart retest of the highs before the traders get bearish enough to generate a stronger correction than what has already been seen.