DOW Friday close at 11842

The DOW fell an additional 464 points this week and the index has now seen a drop of 1294 points over the past 5 weeks. Fundamental news keeps on being negative with inflation rising as well as further losses in the financial industry mounting. In addition, the price of oil has soared and shows no sign of retracing the upside run made over the past few weeks. All in all a bleak picture is facing the marketplace and, at this time, no relief seems to be in sight.

This past Friday, the DOW made a new 20-month weekly closing low and if confirmed next week with another close below the previous weekly low close at 11894, the index will likely suffer further drops, perhaps of consequence.

Nonetheless, the index has held above the previous March lows and on Tuesday the Fed will announce its decision for the month regarding the Fed funds rate. The consensus of opinion on what the Fed will do is so varied, it is likely that strong volatility will be seen immediately after the announcement, perhaps on both sides of the coin. With momentum having been one of the main driving forces over the past few months and the stock indexes being so oversold, it is possible that if the news is seen as a positive, that the DOW will stage a rally.

On a weekly closing basis there is no previous support of consequence under the market until 10739 is seen but the 200-week MA is currently at 11690 as well as a major previous high daily and weekly close made back Jan2000 at 11723. On a daily closing basis the 11740 level has been the low close since Oct2006 and should offer an area of support where some chart buying will appear, especially as it works well in conjunction with the weekly chart supports. On an intra-week/intra-day basis, there have been two previous levels the index has gone down to at 11635 and 11732. Those levels also fit in well with the daily and weekly closing supports. Resistance will now be decent at 11970-12030 from a psychological resistance basis, but on the chart there is no daily close resistance until 12157 is seen and even that is considered minor. The 12307-12381 level is now going to be seen as a very strong resistance on both the daily and weekly charts. Major resistance will once again be 12743. It is not likely that under the present fundamentals conditions that level will be broken any time soon.

With the Fed releasing their decision on Tuesday afternoon, it is likely the DOW will try to stage a rally on Monday and get back up to the 12000 level. Nonetheless, Tuesday afternoon as well as Wednesday and Thursday are likely to be very volatile with drops down to the 11700 level and/or rallies up to 12300 possible and perhaps even probable. By Friday, the DOW chart should be giving a good indication of what it plans to do for the next few weeks.

Due to the fragile nature of the market at this time, it is likely that the Fed will leave rates unchanged. Nonetheless, how the marketplace receives the Fed decision is not clear. The charts are weak, as the supports that were expected to hold up have not. It is evident that this is an important week. The indication, at present, is that the market could easily break the supports underneath. If that happens things could get very ugly, the downtrend could resume, and a further 1000 point drop in the DOW could occur.

With most of the decision depending on the Fed action, and the response to it, it is impossible, as of this writing, to give you a chart indication as to what is the likely outcome this week. The odds have now turned slightly in favor of a resumption of the downtrend, nonetheless, a sideways trading range between 11700 and 12700 is still a strong possibility. One last note, the cycle low in the DOW is due to be made on June 24th. If that holds up, it is possible what whatever low is made on Tuesday, could be the low for the next few weeks.

NASDAQ Friday Close at 2405

Perhaps the best chart indicator of what will happen this coming week is the weekly chart of the NASDAQ. The NASDAQ had a very bullish looking chart, as of last week's closing, but on Friday the bullish formation was destroyed and further downside action is now anticipated. As it is, in the past when the NASDAQ was outperforming both the DOW and the SPX, it was a clear indication that the indexes were likely to get into a bearish trend. With the bullish formation destroyed, it is likely further downside action is to come and that the NASDAQ will continue to be under selling pressure.

The NASDAQ does have some close-by important support that if it holds, could regenerate "some" upside movement. Watching the NASDAQ chart seems to be the way to go this week in order to get an indication of what the indexes will end up doing. It was "head-scratching" to see the strength shown by this index on Thursday dissipating totally on Friday, this coming without any "major" news hitting the board.

On the weekly chart there is no support of consequence until 2368-2373 is seen. At that level the 20-week MA as well as two major previous weekly closing lows are found. Below 2368, there is no support until 2290-2293 is reached. At that level the 200-week MA is located as well as a previous low of decent importance at 2290 is seen. On the daily charts there is one additional support area found, as the 2388 intra-day low (2404 on a daily closing basis) held up on Friday. The daily closing charts also show the 2368-2373 level to be of major consequence, as there are 2 previous daily closing highs and one previous daily closing low, as well as the 100-day MA all located at those prices. Below that level there is no support until 2276-2279 is found.

The chart seems to show that a close below of 2404 is likely to occur at some point this week, and that a drop down to the 2368-2373 level would be seen if that happens. Nonetheless, due to the recent strength this index has shown and the fact the index closed above the support at 2404 on Friday, it is likely that on Monday the NASDAQ could rally and get up to the 2440 level (2430 on a daily closing basis. The Fed action will likely be a catalyst on Tuesday and if the support at 2404 is to be broken, it will likely happen on that day.

A drop down to the 2368-2373 will put the index at great risk. Even though the support at that level is very strong, the index does have a breakaway and runaway gaps just below that level and those two gaps will be working as magnets. The breakaway gap is at 2291-2313 and the runaway gap is at 2348-2362. A closure of one gap will likely cause the closure of the other gap. A break of the support level at 2368-2373 will put great selling pressure on the NASDAQ and a drop down to the 200-week MA at 2290, and closure of the two gaps, would be very likely.

A drop down to the 200-week MA at 2290 will put great pressure on the index as that line was broken once before and it generated a fast 100-point drop. Nonetheless, if that line is broken a second time, the reaction could be extremely negative. Back in Dec01 the NASDAQ broke below the 200-week MA but within a couple of weeks was able to break above it and generated a decent rally, much like what was seen recently. Nonetheless, on the second break of the line, which happened 2 months later, the NASDAQ got into a strong downtrend and dropped 1100 points over the next two months. A re-break of the 200-week MA, this time around, could generate that kind of action again.

It is evident that at this time, the NASDAQ is the index to watch. There are so many levels of importance, both as support and resistance, that it is likely this is the index that will give the best chart picture of what is happening and likely to happen.

S&Poors 500 Friday close at 1319

The SPX ended up closing right at the 200-week MA on Friday. It is important to note that only once in the last 10 years has the index broken that line and the last time it did it was back in May01, that break generated a 140 point drop over a period of 2 weeks. Nonetheless, the index held that line on Friday and it is evident that this week, after the FOMC meeting, the index will decide what it is going to do this time around. A higher close next Friday will be a positive while a lower close, a strong negative.

It is evident that like the other indexes, the SPX is waiting to see what happens this week before making any kind of commitment, one way or the other. Nonetheless, on a weekly closing basis, this index is also at a very important crux point and therefore also needs to be watched closely for clues.

On a daily closing basis, support is decent at 1311 and strong down at 1273-1277. On an intra-day basis, there is decent support at 1313 and then nothing until 1270 and 1257 are reached. Below 1273, there is no daily closing support until 1224-1234 is seen. Even then, that support is only considered decent and not major. Resistance, on a daily closing basis, is now very strong at 1360 and decent at 1350.

The SPX is normally the chart leader and often gives the first signal as to what is going to happen. Like with the other indexes, it is likely that on Monday the index will rally but based on the spike-type action on Friday, it is unlikely it will be able to get above 1330. A close any day this week below 1311 will likely generate a drop down to the 1270 level and a break of that area, on a daily closing basis, will likely take the index down to the low 1200's. Based on the chart from 2001, if the SPX closes next week below 1319, a drop below 1200 could be seen.

In looking at the charts of all the indexes, it is evident that the probabilities of a resumption of the downtrend have increased. Nonetheless, because there is a major catalyst happening this week (in the form of the Fed meeting), it is close to impossible, as of this writing, to determine probabilities of what will happen. In addition, it has been seen in the past, that the indexes usually react in a volatile manner immediately after the release of the Fed action but don't clearly determine the views of the traders until 2 or 3 days thereafter (Thursday or Friday). This makes trading the market this week a very difficult thing. In addition, because of the importance of the levels the indexes are presently trading at, it is much more dangerous for the bulls than for the bears.

The news that has been coming out recently has been quite bearish and it is unlikely that any action taken by the Fed will ease those concerns. In fact, the probability that the Fed action will be seen bearishly under any scenario is high.

Getting on the sidelines is probably the best course of action this week, but if playing the market, the bears are more likely to hit a home run than the bulls.