DOW Friday closing price - 16469

The DOW started out the year on a negative note having closed out last year on the highs of the year and seeing no follow through to upside to begin 2014. The strong upward momentum seen the last 2 weeks with 9 days in a row of higher lows and 8 out of those 9 days with a green close came to an end on January 2nd in an unceremonious way with a spike move down of 178 points. There was no fundamental news to cause a sell-off, likely meaning that the traders may not be looking for the market to continue its trend up, at least not like it was seen at the beginning of 2013.

The year also started with chart questions that yet have no answers, inasmuch as the DOW did generate an expected higher weekly high than the previous week but not yet done so on a monthly basis. The higher weekly high was expected to be seen and was fulfilled with Tuesday's rally up to 16588 (above the previous week's high at 16529), but there is no prevalent history of it needing to be done on a monthly basis as the 2 previous all-time highs seen in the year 2000 and in 2007 were mixed with one of them showing a higher high than the previous month (2000) but not the one in 2007. As such, the chartists will be debating the issue without knowing which example will offer the highest probability this time around.

On a weekly closing basis, there is very minor resistance at 16478. On a daily closing basis, there is very minor resistance at 16479 and minor to perhaps decent at 16576. On a weekly closing basis, support is minor 15755, minor again at 15072 and decent to perhaps strong at 14799/14810. On a daily closing basis, very minor support is found at 16441 and then very minor again at 16097. Below that level, there is minor support at 15821 and decent at 15739.

The DOW did close in the lower half of the week's trading range and the probabilities favor the index going below last week's low at 16416 this coming week. With no economic reports of consequence due out until Friday's Jobs report and the bulls being unable to generate any decent buying interest in the first 2 days of the year, the probabilities favor further selling pressure being seen until some type of support level is established. No close-by support levels were built during the 2 week bull-run seen at the end of the year.

To the downside, the DOW shows no support whatsoever until the previous high daily close at 16097 is reached, and even then that support is minor as it is from a previous high close. Some "general" support may be found at 16300 but then again no resistance was found on the way up at that level, and therefore none should be expected on the way down. Below 16097, the 16000 demilitarized zone should offer some support, especially since it does include the 50-day MA, currently at 15945. Additional but minor intra-week support will be found at 15865, a bit stronger at 15791 and decent support at 15703. To the upside, the DOW will show only minor resistance from the high seen last week at 16588 (16576 on a daily closing basis).

Volatility is likely to be seen over the next week or two in the DOW as traders were unpleasantly surprised at the beginning of the year (end of last week) when selling pressure was seen in spite of a lack of any negative news and such action could cause concern. Nonetheless, with no negative news reported, there aren't any strong reasons to sell either making it likely that this coming week will be mostly technical in nature, at least until Friday's Jobs report and start of the earnings quarter on July 9th, meaning that the traders will likely be trying to see where support and resistance is found by trying both sides as much as possible.

Probabilities favor the DOW testing the previous all-time high daily close at 16097 and in the process likely taking the index down as low as the 16000 demilitarized zone. By the same token, there are no special reasons to think that the recent high seen on Tuesday at 16588 is the top to this rally, especially since the probabilities still favor the index going above last month's high at some point this month. It can then be speculated that a 16000-16600 trading range could be seen this week, with no special meaning attached to either level being seen.

NASDAQ Friday closing price - 4131

The NASDAQ lost its leadership to the upside this past week with many of the main stocks in the index taking strong percentage hits in price (AAPL - 4%, NFLX - 4%, and PCLN - 5%), much higher than seen in the main stocks in either of the other 2 indexes. The loss of leadership is likely indicative that it is near a top or has seen a top made as this has been the index that for the past 6 months has been the main reason the market has rallied to such stratospheric highs. Without these very speculative and high PE ratio stocks moving higher, it is difficult to imagine the buying continuing to be seen as has been seen of late.

It does need to be mentioned that chart-wise the NASDAQ is reaching levels where selling of consequence was expected to be found as in the year 2000 the 4200-4300 level was a brick wall and with the index having gotten as high as 4177 this past week it should be assumed that much of the selling seen can be attributed to chart traders looking to take profits or go short.

On a weekly closing basis, minor resistance is found at 4156. Above that level, decent to perhaps strong resistance is found between 4234 and 4246. On a daily closing basis, there minor resistance at 4167 and minor to perhaps decent at 4176. On a weekly closing basis, support is minor but indicative at 4000, very minor at 3919 and at 3791, and decent at 3589. On a daily closing basis, support is minor at 4068, minor to perhaps decent at 3993, and minor at 3985. Below that level, support is decent at 3857.

The NASDAQ did close on the lower half of the week's trading range and further downside below 4124 is likely to be seen. The index still has an open weekly gap between 4111 and 4124 that should be closed this week. Nonetheless, it should be mentioned that if the stock gaps down on Monday below 4124 and does not get closed by the end of the week, it will appear as an rare but indicative island formation that would certainly be a signal that a "major" top has been made. Simple closure of the gap would not be a major negative but would strongly suggest that the uptrend is slowing down and that the selling interest will continue to increase as the index tries to rally further.

To the upside, the NASDAQ now shows weekly close resistance at 4177 as well as at 4234 and 4246. On an intra-week basis, there is now a double top at 4175/4177 that is likely going to need some positive fundamental news to break. To the downside, the index shows minor daily close support at 4068 but no previous intra-week support until the 4000 level is reached, which also includes the 50-day MA, currently at 4010. Further intra-week support is found at 3979 that if broken would signal that a top to this rally has been found.

The NASDAQ is looking like it wants to go lower. All 6 of its main stocks (AAPL, AMZN, BIDU, GOOG, NFLX, and PCLN) are showing a strong propensity to drop an additional 5% in value down to their individual support levels, even within the context of the bull market continuing. If the index drops an additional 5% in value it would drop down to 3926, meaning that it would find itself 250 points from its high made just last week. Even if the index does not drop the same 5% that its main stocks could drop, a fall down to the 4000 level seems to be a high probability event if the weakness seen at the end of the week continues.

Watch closely for a weekly gap opening on Monday. I doubt very seriously that it will happen but if it does it will be a strong signal to the traders that it is time to go short.

SPX Friday closing price - 1831

The SPX generated a reversal week having made a new all-time high at 1849 and then closing in the red and near the lows of the week, suggesting further downside will be seen this coming week. It is important to note that the 1849 high does fulfill some chart objectives with the 2000 all-time high having been 15"52" and the 1850 level being a minor psychological resistance.

The SPX seems to have "run out of steam" as 4 of the past 5 days have generated red closes and that was in spite of the fact that the DOW only generated 2 red closes in the last 5 trading days. With the SPX generally following the DOW much more than the NASDAQ, it is evident that the buying interest in the index and its financial stocks has begun to wane.

On a weekly closing basis, there is minor resistance at 1841. On a daily closing basis, there is very minor resistance at 1842 and minor at 1848. On a weekly closing basis, there is minor to perhaps decent support at 1775, minor support at 1690 and minor again at 1667. On a daily closing basis, support is very minor at 1808, minor at 1885 and 1881, and minor to perhaps decent at 1775. Below that level, there is minor but indicative support at 1747.

To the downside, the SPX has no support until minor previous-high support is found at 1808. Minor support is also found at the 1800 level. Nonetheless previous low intra-week support is not found until 1777/1779 is reached. Stronger support is found at 1767. With 2 red close days in a row and a close near the lows of the week, the probabilities strongly favor further downside with 1800-1808 as the downside objective for the week. To the upside, some minor resistance will be found at 1844 and a bit stronger at 1849.

The 1767 level in the SPX is now a pivotal support that is likely to be tested but not likely broken unless the index is into the seasonal correction. Nonetheless, it should be mentioned that for the past 12 months, the index has not even gotten as low as 18 points from the previous intra-week low, meaning that the index should not go below 1786 on any minor correction if the uptrend is to continue unabated. With the 50-day MA currently at 1792, any dips this week should be contained just under the 1800 level.

The traders were surprised at the beginning of the year when they came in and found selling interest in spite of the fact that the indexes had closed strongly on December 31st. The bulls tried to generate some buying on Friday but they mostly failed as all indexes closed in the lower half of the trading day and only the DOW closing in the green. More importantly, the selling materialized at the end of the day after new highs on the day were made late afternoon, suggesting that the buying has become more temporary than long-lasting.

Nonetheless, the indexes are facing an important fundamental week with Factory Orders coming in on Monday and the Jobs Report coming in on Friday. In addition, the earnings quarter starts on Thursday with AA reporting after the market close. The earnings quarter usually suggests buying will be seen for the first 3 weeks of the quarter. Nonetheless, the major top made in the year 2000 came on the second week of January, suggesting that the first quarter earnings that year did not stimulate new buying interest. Earnings have been slowly coming down during the past 6 months and if that trend continues, it could be what generates an earlier seasonal correction than normally seen.

It also needs to be mentioned that the Debt Ceiling issue comes back into play on January 15th and that is a monkey wrench that has more negatives than positives attached to it. There has been very little mention of the Debt Ceiling issue of late, but as the date gets closer it is likely to bring in selling interest just in anticipation of it. As such, with so many questions that yet have no answers, it is unlikely that the bulls will be aggressive buyers at this time.