DOW Friday closing price - 16775

The DOW generated a negative reversal week after making a new all-time high at 16970 and then turning around to close in the red and near the lows of the week. The reversal could end up being indicative inasmuch as the 17000 demilitarized zone was the upside objective of this rally and having reached that level the reversal action seen in the index could be a sign that the "sell in May and go away" seasonal correction has started.

The DOW closed near the lows of the week and further downside below last week's low at 16703 is expected to be seen this week. If the index does break, and more importantly close, below the 16670/16700 level it would be another clue/indication that the selling interest has spiked up. By the same token, the 16700 level is considered "general support level" (300 points below an even level) and the index on Friday generated a green daily close and near the highs of the day, meaning that the first course of action for the week is likely to be to the upside. Having gotten down to 16703 this past week, it could mean that if the bulls are able to hold the index above that level, at least on a daily closing basis, a new attempt at the highs could be seen over the next week or two.

To the upside, the DOW shows resistance at the week's high at 16970. On the intra-week chart, the index shows some resistance at 16850 which can be considered decent, at least on an intra-day basis. The index did generate a green day on Friday as well as a close near the highs of the day, suggesting further upside above Friday's high at 16787 will be seen on Monday. A rally up to the 16850 level followed by a failure thereafter would be considered a needed retest of the all-time high on the daily chart, something that is likely to be seen if the index is starting its seasonal correction.

To the downside, the DOW will show some support, on a daily closing basis, at the 16700 as well as at the previous all-time high daily close seen in December at 16576 and at the previous all-time high weekly close at 16478. Further support is found around the 16300 level, having been down to that general area 3 times over the past 5 weeks (16312, 16357, and 16340). In addition, the 50 and 100 day MA's are both in that general area as well, suggesting that the traders it has become a pivot point that if broken would suggest the top is found. Further but minor support is found at 16240 and then the strong support at 16015/16046 that is considered a double low that if broken would likely bring in new selling.

The DOW traders are likely to be looking more at the NASDAQ action this week than the action in its own index simply because the NASDAQ has been the leader during the past 5 years and yet this past week a failure-to-follow-through signal was given. If that signal is confirmed this week, it will be very unlikely that the DOW will generate any further upside.

NASDAQ Friday closing price - 4310

The NASDAQ generated a negative reversal, having made a new 13-week high and then closing in the red, suggesting that the previous week's close at 4321 is the expected successful retest of the previous 14-year weekly closing high at 4336. If the retest is confirmed with another red close next Friday, the probabilities of the seasonal correction having started will increase.

The NASDAQ did generate some buying interest on Friday and did close on the highs of the day, also suggesting that the first course of action for the week will be to the upside as the bulls try to negate the reversal seen last week. By the same token, if the bulls fail to accomplish a reversal back to the upside and a rally above last week's high at 4346, the selling will likely increase at the end of the week.

The NASDAQ has now "set the stage" for a duplication of the action seen in 2011 when in May the index made a new multi-year high at 2887, corrected 10% over the following 7 weeks, and then rallied back up to 2879 (9 points below the previous high) before beginning a 20% correction. On this occasion, the index made a new multi-year high in March, corrected 10% in value over the following 8 weeks and has now rallied to 25 points off of the previous high at 4371 and in the same type of time frame that includes the "sell in May and go away" seasonal tendency. In addition, the index has now successfully tested not only the intra-week high but the daily and weekly closing highs, meaning that the pattern both years is extremely similar and does suggest that the seasonal correction has begun.

On an additional negative today, the NASDAQ closed the runaway gap between 4299 and 4305 with a drop last week to 4286, meaning that the breakaway gap between 4186 and 4204 is now a magnet. To the upside, the NASDAQ will show intra-week resistance at 4344/4346 and at the 14-year high at 4371. Nonetheless, on a daily closing basis, resistance is found at 4336 and at 4359 and on a weekly closing basis at 4321 and 4336.

To the downside, the NASDAQ now shows minor support at 4286 and then nothing until 4239-4250 level where a couple of previous lows and a previous high are found. Further and likely pivotal support is found at the 4207 level that represents the previous week's low but also a level that if broken would likely bring in renewed selling interest of consequence. Based on the negative reversal seen last week, if last week's low at 4284 is broken, the 4207 level will likely be tested. A break of that level will weaken the chart substantially and likely thrust the index down to the next support at 4131. A break below 4131 likely cause the index to drop back down to the 200-day MA, currently at 4060, and put the traders at an important decision point as a break of the MA line would suggest that not only the recent uptrend is over but that the seasonal correction has begun.

The action seen in the NASDAQ this past week has fulfilled the upside chart objectives and with the summer doldrums, the seasonal correction likely to still occur, and the probable lack of fundamental help to stimulate new buying interest, the probabilities have increased that the index is ready to head lower.

SPX Friday closing price - 1936

The SPX also generated a classic negative reversal, having made a new all-time high and then closing in the red and in the bottom half of the week's trading range, suggesting further downside below last week's low at 1925 will be seen this week. It is also important to note that the 19"55" high seen this week matches the 15"55" high made in the year 2000, giving the chartists additional reasons to think that this high does represent a top to this rally.

Like with the other indexes, the SPX did generate a rally on Friday and a close near the highs of the day and the first course of action this week is likely to be to the upside. Should the index go above Friday's high at 1937 and then fail to get above 1955, it will be considered the needed retest on the daily chart of the all-time high and would likely generate additional selling interest.

The SPX has now been on a strong uptrend since the last correction of consequence seen in May-October 2011. The index has moved up from 1074 to 1955 over that period of time and each correction has been shorter than the previous one with the last one being only 4.4%. The action does suggest some type of exhaustion scenario is occurring, especially when considering that the last 2 "sell in May and go away" corrections in 2013 and 2012 were 7.6% and 10.8%, prior to the one in 2011 which was 20.8%. With the Fed starting to withdraw stimulus from the economy and some analysts even talking about a rate hike coming sooner rather than later, it does suggest a correction of consequence is on the horizon.

To the upside, the SPX now shows resistance at 1955. On the intra-day 10-minute chart, resistance will be found at the 200 10-minute MA, currently at 1942, that got broken on Wednesday and that is now likely to hold back any rallies seen. To the downside, there is no support until the 1900 level is reached and even then that support is from previous highs (1897 and 1902) and not previous lows. If 1897 is broken, the next support found is at 1862 and at 1850 that if broken would give a sell signal. Important support is found at 1814 that does include the 200-day MA, currently at 1804.

The bulls are likely to attempt to get the SPX to negate the reversal this week but if they fail to get above the 200 10-minute MA at 1942 it will be seen in a negative light and the selling interest will resume.

The indexes have now fulfilled all the upside objectives and the action seen at the end of the week does suggest that the possibilities have increased that the seasonal "sell in May and go away" correction has started. This coming week is pivotal as the bulls will attempt to negate the action seen last week and resume the uptrend but a failure to do so will bring in strong profit-taking and new selling interest.

There are a few economic reports this week starting with Manufacturing and Production reports coming out on Monday, Housing and Inflation information on Tuesday and Fed information on Wednesday and Thursday. Nonetheless, none of the reports due out this week are catalytic in nature, suggesting that the traders will key more on technical trading than fundamental information.

Probabilities favor an attempt at a rally at the beginning of the week and further weakness at the end of the week.