DOW Friday closing price - 16361

The DOW generated a likely indicative negative reversal week, inasmuch as the index got above the previous week's high but then closed in the red and on the lows of the week and suggesting that if the index does go below last week's low at 16333, it will become the required successful retest of the all-time high at 16631. A successful retest of the highs at this time, with the first 3 weeks of the earnings quarter coming to an end and the "sell in May and go away" adage coming into view, is likely to be the "nail in the coffin" as far as the upside for the next 3 months is concerned.

What makes the action seen this past week in the DOW even more indicative is that the economic and earnings reports that came out were everything the bulls could have asked for and yet the end result was a negative. As such, it seem safe to assume that the buying interest in no longer strong enough to resume the uptrend that stalled at the beginning of the year.

On a weekly closing basis, there is minor to perhaps decent resistance between 16408 and 16412, decent at 16452 and strong at 16478. On a daily closing basis, there is now minor to perhaps decent resistance between 16437 and 16452, decent at 16514 and decent to perhaps strong between 16572 and 16576. On a weekly closing basis, support is decent between 16026 and 16086, minor to perhaps decent at 15698, minor at 15665, minor again at 15072 and decent to perhaps strong at 14799/14810. On a daily closing basis, there is minor support between 16245 and 16264, decent between 16026 and 16065, minor support at 15821, minor to decent at 15739 and strong at 15372.

The DOW is now showing a double top on the daily closing chart at 16572/16576 and a successful retest of that level with Tuesday's close at 16514, followed by 3 red closes thereafter. On the weekly closing chart, the index is now showing a high weekly close at 16478 (made the last week of December) and 3 subsequent successful retests of that high at 16452, at 16412 and at 16408. It is clearly evident that the bulls have attempted unsuccessfully to resume the uptrend for the past 5 months and with the slow summer months now approaching it is likely the bears will gain a measure of control for the near term.

Last week's high in the DOW at 16565 is now considered strong intra-week resistance and pivotal. A break of that level would be considered a win for the bulls, especially if done on a closing basis. The bulls will have one last opportunity this coming week with a slew of important economic reports (GDP, Housing, Manufacturing and Jobs) coming out. If those reports do not instigate a rally, the bulls will have no ammunition for the next 3 months with which to generate new buying interest. Such a long topping out period (5 months) will weigh heavily on the market and will likely cause a strong correction to occur, perhaps as strong as the correction seen between the weeks of May 2nd and October 3rd in 2011 when the index corrected 19.2% in value. A correction of 19.2% would take the index down to 13380 over the next 6 months.

To the downside, the DOW chart shows pivotal daily close support at 16257 (give or take 20 points). Since the second week of January, when it first got established, that has been support on 3 different occasions and therefore likely to be a level the traders will key on this week. Drops down to that level could be seen as early as Monday but it is unlikely the level will be broken until the traders are convinced the economic reports will not be strong enough to generate new buying interest. As such, if the index does get down to that level early in the week, some upside bounces could be seen before any decision is made.

The action on Friday in the DOW, with the close below last week's close at 16408, does suggest that the bulls have the burden of proof on their shoulders. No longer will reports that come out at or slightly better than expected make a positive difference. The economy needs to show enough growth to embolden the bulls to buy at these possibly stratospheric levels. It that does not occur, the traders are likely to sell in May and go "away" until fall arrives.

NASDAQ Friday closing price - 4095

The NASDAQ generated a red weekly close on Friday and with strong positive earnings reports on NFLX, AAPL, and BIDU and a neutral report on AMZN, it has to be considered a sign that no further upside is likely to be seen and that the rally/recovery seen the previous week has been cut short. The index did close on the lows of the week and with no further earnings reports of consequence due out this week, the probabilities favor the bears being in control.

The NASDAQ was the leader to the upside and has now been the leader to the downside for the past 8 weeks. As of the end of the previous week, the index had fallen from the high of the year a total of 9.8%, compared to 3.6% in the DOW and 4.4% in the SPX, suggesting that strong profit taking binge has been occurring. With nothing but positive earnings news this past week, the red close on Friday has to be considered a sign that the leadership to the downside and profit taking binge is not yet over.

On a weekly closing basis, minor to now perhaps decent resistance is found between 4095 and 4103, minor to perhaps decent resistance is found at 4197, very minor at 4276 and decent resistance is found at 4336. On a daily closing basis, minor resistance is found at 4123 and at 4148 and minor to perhaps decent at 4161. Above that level, there is minor to perhaps decent resistance at 4183 and decent at 4243. On a weekly closing basis, support is decent at 3999/4000, minor at 3919, and at 3791, and decent at 3589. On a daily closing basis, support is decent between 3996 and 3999, minor at 3921, minor again at 3857, and minor to perhaps decent at 3677.

The NASDAQ is now showing 4 successful retests of the 14-year daily closing high at 4357 with closes at 4333, at 4276, at 4185 and at 4161. All successful retests have been lower than the previous ones, suggesting a consistent pattern of failure. The same cannot be said on the weekly chart as only 2 very minor successful retests of the 14-year weekly closing high at 4336 have been seen over the past 8 weeks with 4276 being the first and the previous week's close at 4095 being the second. The lack of a strong successful retest on the weekly chart is a longer term concern for the bears as it does suggest that at some point the index will generate a rally of consequence and a more defined retest of the high. By the same token, the lack of a distinct successful retest on the weekly chart also suggests that at this time the selling and/or profit-taking interest is prevailing over anything else.

To the downside, the NASDAQ shows decent support on the weekly closing chart from a double low at 4000/3999 but on the daily closing chart the support is now a triple low at 3998/3996/3999, suggesting that at least on a daily closing basis the index is highly likely to close below that level at some point. The 200-day MA is currently at 3965 and that level on a daily closing basis could be considered support, meaning that the index could close below the triple low but then turn around and rally. A close below the 200-day MA though, would suggest the general resistance down at 3700 would be reached.

To the upside, the NASDAQ now shows decent resistance on a weekly closing basis between 4095 and 4103 that is unlikely to get broken unless the entire market rallies this week, off of the economic reports. A weekly close above 4103 would suggest a rally to the weekly close resistance at 4197 that is considered decent. On the daily chart though, it is very clear that the index needs to close above the most recent successful retest of the high at 4161. A close above that level would likely generate enough buying interest for a rally to the 4243 daily close resistance that is also considered decent.

The NASDAQ will continue to be the index to watch especially now when the bulls have run out of earnings reports ammunition. The index shows high probabilities of further downside with at least the 3965 level as an objective to be reached before any buying interest resurfaces, at least on a chart basis.

It should be noted that in May 2011, the NASDAQ corrected 10% in value and then rallied back up to within 8 points of the previous high by July before correcting 20.5% in value by October. With the index already having corrected 9.8% in value over the past 8 weeks and not yet having had a good retest of the 14-year high at 4371, there is a possibility that the index will head down to the 3965 level over the next couple of weeks and then generate a rally back up near the previous high before embarking on the stronger correction.

Expect the NASDAQ to get down to at least 3965 within the next week or two and then generate a rally of consequence to test the 4371 high.

SPX Friday closing price - 1863

The SPX had a negative reversal week, having made a new 3 week high and then closing in the red. The high at 1884 will be considered a needed and required intra-week retest of the 1897 all-time high if the index gets below last week's low at 1859 this coming week. On a weekly closing basis though, the close was only 1 point below the previous week's close and only 15 points below the all-time high weekly close, meaning that no strongly negative statement has yet been made. By the same token, the daily closing chart is now fulfilled as the index did test successfully the all-time high daily close at 1890 with Tuesday's close at 1879 followed by 3 lower closes the rest of the week. In addition, the 1879 close was also a successful retest of the high daily close seen March 7th at 1878, giving further strength to the idea that the index has topped out.

The SPX has now traded mostly in a 40 point trading range between 1840 and 1880 for the past 2 months (46 trading days) and the inability of the bulls to generate a resumption of the uptrend in spite of good news on the earnings front should start weighing heavily at this time of the year when a seasonal correction is likely to occur.

On a weekly closing basis, there is minor to perhaps decent resistance at 1865/1866 and decent to perhaps strong at 1878. On a daily closing basis, there is minor resistance at 1872, decent at 1878/1879 and decent to perhaps strong at 1890. On a weekly closing basis, there is minor support at 1841, decent at 1815, minor at 1805 and decent at 1775/1782. Below that level, there is no support until minor support is found at 1709. On a daily closing basis, there is minor support at 1848 and minor again at 1841 and decent at 1815. Below that, there is very minor support at 1809, minor to perhaps decent at 1780 and decent to perhaps strong at 1741.

The SPX seems to have "run out of steam" after 7 days of higher lows than the previous day and 7 out of 9 green closes. In addition, the index generated a 25 point drop from the intra-day high on Thursday to the intra-day low on Friday, which is the biggest drop seen in the last 10 days, suggesting that some decent profit taking was seen at the end of the week.

To the upside, the SPX now shows pivotal resistance at 1884 (1879 on a daily closing basis) that if broken would likely re-stimulate the buying interest. To the downside, the index now shows pivotal support at 1839 (1841 on a daily closing basis) that if broken would likely bring about a retest of the now important intra-week support at 1814/1815.

The SPX chart is now totally fulfilled and with the last important fundamental information due out this week, the probabilities are high that some kind of decision for the longer term will be made. The probabilities now favor the bears as the bulls have shown a pattern of failure-to-follow-though during the past 2 months.

Expect the index to get down and likely break the support at 1814/1815 sometime during the next 2 weeks and a drop down to the 200-day MA, currently at 1772, to be seen.

The important first 3 weeks of the earnings quarter are now over and the action seen suggests the bulls failed to make a case for higher prices. The bulls will have one more opportunity to make a case this week with a slew of important economic reports due out. On Tuesday the 20-city Case/Schiller report and the Consumer Confidence number come out, on Wednesday the GDP Adv number, ADP Employment change, Chicago PMI, and FOMC rate decision will be reported, on Thursday the ISM Index report and Personal Income and Spending number will be shown, and on Friday the Jobs report will be stated. These reports constitute 80% of the important economic reports for the month and after those come out the traders will not have anything to help them make decisions for another month, suggesting that some resolution should be made by the end of the week.

Based on the negative action seen in the face of positive earnings reports, as well as on the chart outlook that suggests an inability of the bulls to resume the uptrend, the probabilities now favor the bears. This is especially true since the dependable seasonal correction named "sell in May and go away" is now in view.