DOW Friday closing price - 16544

The DOW has now seen 3 weeks in a row of red weekly closes, as well as a drop of 807 points from the 17350 all-time high seen in mid-September, suggesting that top for the year has been built and that the index has further to go to the downside if mimicking the 8.8% correction seen between October and November 2012. The index has so far dropped 4.9% from the 17350 high.

The DOW closed on the lows of the week and further downside below last week's low at 16543 is likely to be seen with the 50-week MA, currently at 16495, as the minimum objective. The 50-week MA has not been broken since the 8.8% correction seen in 2012 and has to be considered a level the traders will be paying close attention to and one the bulls must try to support aggressively.

The 200-day MA in the DOW, currently at 16590, got broken on Friday and that is the first time it has happened since February and only the second time in the last 22 months. In February the index got below the line for 3 days and by as much as 130 points before in reversed and negated the break. With the 50-week MA, currently at 16495, and 100 points below the 200-day MA, it does suggest that a drop down to anywhere between 16465 and 16495 is likely to be seen but that it is a level that will be considered pivotal.

There is one other chart point in the DOW that is likely to be seen this week and is of great importance, meaning the week could be not only pivotal but indicative as to the trend for the next 6 months to a year, or longer. The DOW has been on this present uptrend since September 2011 and during this 3-year period of time not even once has a previous weekly closing "low of importance" been broken, and there have been 6 of them. The 16493 weekly close (16333 on an intra-week basis) is considered a weekly "low of importance" that if broken would not only suggest further downside but would suggest that the 17350 high is at least a mid-term top if not a long-term top from which a downtrend could be seen.

What this all likely means for the traders, is that this present correction in the DOW needs to be no more than 5% (not the 8.8% seen in 2012). It also likely means that if the bulls are to be successful in keeping the uptrend alive for next year they will need to keep the losses to less than 220 points over the next week or two and generate some kind of turn around during that period of time.

To the upside, the DOW will show resistance at the 200-day MA, currently at 16595, minor at Friday high at 16757, and then nothing until the 17000 demilitarized zone. To the downside, the index will show support at the 16500 demilitarized zone and stronger at 16333. Below that, it is straight down to the 16000 level before support is found.

The bulls in the DOW have been unable to generate any kind of a lasting rally over the past 3 weeks though they have continued to buy dips as they have done successfully for the past 3 years. The bears have been in total control but are now likely to face an area that is pivotal to the longer term health of the market and some fireworks should be seen over the next couple of weeks, especially since the always-important first 3 weeks of the earnings quarter are now here. It is possible and probably likely that long-term decisions will be made at this juncture. Probabilities continue to slightly favor the bulls since the bears must first prove they can actually accomplish breaking a support level of consequence.

NASDAQ Friday closing price - 4276

The NASDAQ continues to lead the way to the downside as the index was the worst hit this past week, having fallen 4.5% in value, compared to around 3% in the other indexes. In addition, the index convincingly broke a previous support low of consequence at 4321 as well as the 200-day MA, currently at 4300, meaning that the bulls have been unable to generate the kind of dip buying that has been seen consistently in the past.

The NASDAQ closed on the lows of the week and further downside below last week's low at 4276 is likely to be seen. Nonetheless, in spite of breaking a support level as well as the 200-day MA, the index has a fallback support at 4250 which is where the 50-week MA is currently at. The line has not been broken since November 2012 and even then it was broken for only 1 week, meaning that since January 2012 (33 months), the line has held firm and has to be considered a good fallback support level.

To the upside and on a daily closing basis, the NASDAQ now shows resistance at the 200-day MA, currently at 4300. Further and stronger resistance will be found at Friday's high at 4380 that includes a previous intra-week high of consequence from March at 4371. That level is now likely to be pivotal. The strongest resistance without talking about the 14-year high will be found between 4470 and 4485.

To the downside, the NASDAQ does show some decent support between 4236 and 4252 that is further supported by the 50-week MA, currently at 4250. Below that area it is mostly "open air" until the 4000 demilitarized zone is reached.

Based on the negative action seen this past week and the support levels mentioned above, it is clearly evident that if further downside occurs, much below the 4236 level, the traders will likely begin to panic and the NASDAQ could take a move down to the 4000 level. It does need to be mentioned that in 2012 the index fell 12.1% between September and November and a correction of that percentage at this time would offer a 4052 downside objective.

The NASDAQ is likely to be a big key this week even though all indexes have important and pivotal support levels close-by, simply because the selling has been keyed on the index and if the market is to hold the supports mentioned here, it will be the NASDAQ that will probably lead the way.

Probabilities do favor the NASDAQ getting down to the 4250 level this week (26 points lower than Friday's close) but if there are no strongly negative surprises in the earnings reports, the chances are that a bounce will occur by the end of the week.

SPX Friday closing price - 1906

The SPX gave a sell signal on the weekly closing chart on Friday by closing below the last important spike low weekly close seen in August at 1925. More importantly, it is the first sell signal on the weekly closing chart given in the last 3 years, not seen since the last 20.2% correction that occurred in the Jul/Oct 2011 period.

The SPX closed on the low of the week and further downside below last week's low at 1906 is likely to be seen this week, meaning the intra-week spike low seen in August at 1904 is also likely to get broken, which in turn would give the bears the kind of edge they have not had for the last 3 years.

Nonetheless, the sell signal given in the SPX will need to be confirmed next Friday in order to be effective and the bulls will have a chance to negate the break since most of the important stocks in the index (WFC, JPM, GS, BAC, and MS) all report earnings this week. By the same token, if the bulls are unable to negate the break of support by next Friday, it will suggest that at least a strong correction is occurring, if not a major long term top having been made.

Chart-wise though, the SPX does have a "fall back" support level that is almost as important and compelling as the 1904/1925 intra-week supports are. The 50-week MA is currently at 1887 and that line has not been broken on a weekly closing basis since it got broken to the upside in January 2012 (33 months ago), which was after the 2011 20.2% correction seen in July/Oct 2011 and that kept the index below the line for 5 months. As such, confirmation that a major top has been built at 2019 will have to include a weekly closing break of the line as well as break of support.

To the upside, the SPX will show resistance between Friday's high at 1936 and up to a couple of previous minor intra-week highs around 1940/1944. Stronger resistance is found between 1970 and 1977. To the downside, support is found at 1904 and then nothing until weekly close support at the 50-week MA, currently at 1887. Further congestion support is found between 1850 and 1862.

It should be mentioned that the SPX does show a couple of intra-week highs at 1897 and at 1899 as well as the intra-week low support at 1904, meaning that the 1900 demilitarized zone must be considered pivotal. With important earnings coming out this week and 2 of those before the open on Monday, it is likely that the index will be the first to give a clue as to what to expect the rest of the week. Probabilities continue to favor the bulls but slightly. The uptrend remains intact, at least when considering the MA lines, and until those get broken, the uptrend will remain in effect.

The indexes took another sharp fall this past week, strongly implying that the highs for the year are set. It is evident now that the indexes are at least in a corrective phase with the big question being "how much of a correction will occur?". The indexes have presently corrected about 5% so far and the correction seen in Oct/Nov 2012 was between 8 and 12%, depending on the index, meaning that further downside could be seen. Nonetheless, the charts are slightly different from 2012 and such a correction now could have stronger implications, which in turn might suggest the indexes would mimic the correction seen in 2011 that was between 20 and 22%. Some economists have also stated that what the Fed has done by keeping interest rates near zero for such a long time and the unprecedented Stimulus program that was in place, the market could end up having a deeper recession than what was seen before. Already the "world-wide" slowdown of GDP is a negative sign that may be presently irreversible.

The next 2-3 weeks, are likely to be important, indicative and perhaps pivotal since earnings are likely to help "clear up the picture". The first 3 weeks of the earnings quarter have generally been positive for the market and those begin this week with JPM, WFC, JNJ, GS, BAC, INTC, NFLX, GOOG, MS and GE reporting. These reports do represent important stocks in all 3 indexes and as such by the end of the week the traders will have a better idea of what to expect from the overall market.

For now, it has to be assumed that the bulls still have the edge (though now very slight) as no confirmed signals have yet been given that the uptrend is over.