DOW Friday close at 9544

The DOW generated another weekly green close on Friday, thus extending the impressive rally the index has been on for the last 6 months. Nonetheless, the small weekly trading range (171 points) as well as the inability to get up to or above the November intra-week highs at 9654, after a classic reversal week the previous week, caused doubts to appear regarding the strength remaining in the up-trend.

In spite of the DOW receiving additional positive fundamental news and continued buying on dips, all rallies above 9600 were met with strong selling. The 9625 daily closing high, the last bastion of daily close resistance before the 10,000 level is reached, was tested successfully three times with rallies up to 9620 on Tuesday, 9610 on Thursday, and 9629 on Friday. All rallies failed to generate a close above 9600 and on Friday the string of 8 daily green closes in a row was snapped when the index closed in the red.

On a weekly closing basis, there is no resistance until the psychological level at 10,000 is reached. Above that level, the next resistance would be up at 100-week MA currently at 10543. On an intra-week basis, though, there is a previous high made the week of November 4th at 9654 that does offer some resistance. On a daily closing basis, there is decent resistance at 9625. Above that level there is nothing until 10,000 is reached. On a weekly closing basis, minor support will be found at the most recent low close at 9321. Below that there is nothing until the 50-week MA currently at 8590. Below that level, very minor support around 8500, decent support at 8296, and strong support at 8147. On a daily closing basis, there is minor to decent support at 9241/9256 and decent to strong at 9135. Decent support is found around 8937 but below that there is no support until the 50-day MA is reached down around 8700.

It was very evident this past week that "strong" selling came in on rallies above 9600. Nonetheless, the bulls were not about to give up after seeing support levels hold up and continued buying on dips. On Thursday they were able to generate a positive reversal day hoping that the follow through on Friday would allow the remaining minor resistance levels to be broken and a swift rally up to the 10,000 level. Nonetheless, even though they were successful in generating a new 10-month high on Friday by about 10 points, the new high did not generate any further buying and the index closed in the red. Such action will be considered a failure-to-follow-through event if a red close is seen on Monday.

It is evident that continued good news is no longer generating the kind of buying needed to keep the up-trend intact. Rallies are beginning to encounter strong selling and with September, the worst month of the year for the indexes, just a couple of days away, the probabilities of the indexes heading lower from here has increased sharply.

With the DOW having had such a small trading range last week (171 points - 9459-9630) breaking out of that trading range should be seen this coming week, and offer clear direction as to where the index is heading for the next few weeks. A drop below 9459 should generate at least a move down to test the low of the previous week's reversal to the upside (9117) with a drop down to at least the 9174 level. By the same token, a rally up above 9630 should generate a move up to the 9654-9704 level. On an intra-day basis, the 9588 level is now seen as resistance while the 9486 level is support. A break of either of those levels should generate further movement in that direction.

I do believe that based on the action on Friday, as well as the failure to close above the 9625 level when the index was in such a strong up mode, that the top has been found and that the downside will be explored for the next month at least. Drops down to test the psychological support at 9000 are now probable.

NASDAQ Friday Close at 2029

The NASDAQ, on a daily closing basis, kept itself above the 2000 level all week (2018, 2024, 2024, 2028, and 2029) but was unable to generate any further upside of consequence, above the close the previous Friday at 2021. In a strong up-trend such action seems to suggest that staying above 2000 may be short lived. In addition, the index was greatly helped on Friday when one of its main stocks (INTC) raised its sales forecast and rallied over 10% in value in one day, and yet the index itself was not able to do the same.

It must also be mentioned that the NASDAQ came within 12 points of fulfilling its upside objective of reaching the 100-week MA currently at 2071. Nonetheless, after getting up to the 2059 level, a level that has proven to be strong resistance on several occasions over the past 11 years, the index sold off and closed at yet another weekly closing resistance of consequence at 2029.

On a weekly closing basis, there are 5 previous closes dating back to 1998 between 2002 and 2059 that signal that area as strong resistance. Above that level, resistance will be found at the 100-week MA, currently at 2071. On a daily closing basis, only minor resistance is seen at 2092. On a weekly closing basis, support is minor at the most recent low weekly close at 1986. Below that, there is no support until minor support is found at 1859 and strong at 1756. On a daily closing basis, support is now minor to decent at 1970 a decent to strong at 1931. Below that level there is nothing until 1862 is reached (previous high daily close of some consequence). Strong support is found between 1746 and 1765.

Over the past few weeks I have mentioned that the NASDAQ has had problems in the past getting above and staying above the 100-month MA, even when in the beginning years of an established bull market (2003-2005). Monday is the end of the month and the 100-month MA is currently at 2000. It must be mentioned that between 2003 to 2005, the index did close above that line on 3 occasions but the close was never by more than 60 points and in each occasion the following month the index closed below the line. With the MA currently at 2000, the highest close likely to be seen on Monday, based on past history, would be 2060. Nonetheless, that is the "most" expected. The probabilities do favor a close around 2000, especially since the MA is still in a down slope, not in an up slope as it was in 2003-2005.

It is evident by the strong selling seen on Friday, in spite of the strength seen in INTC that further upside is now going to be very difficult to achieve. Having reached all the upside objectives there is little more to accomplish technically at this time, and without the help of technical buying the index will likely see selling begin to overwhelm the buying as support levels are weak and distant.

The NASDAQ shows a strong intra-day support level at 1993 (Thursday's low) but if that level gets taken out, drops down to the next support at 1929 will likely be seen. The 50-day MA, which has been broken only once during the past 4 months, is currently at 1909. A break of that line will likely thrust the index down to close an open gap between 1800 and 1824. Resistance will be strong at the 100-week MA, which will be at 2067 next week. On the intra-day chart, though, resistance is strong at 2038/2040. Based on what happened on Friday that level is likely to hold back any rallies, unless the index will be attempting to make a new high.

S&Poors 500 Friday close at 1029

The SPX extended its up-trend making new 10-month highs this past week. Nonetheless, the index failed to get above the high made the week of October 13th at 1044 (first bounce up from the initial October 6th collapse) and gave signs throughout the week, by trading sideways in spite of good news, that further upside will be very difficult to accomplish.

On a weekly closing basis, the SPX has now accomplished a 50% retracement from its low weekly close at 683. A 50% retracement is a strong Fibonacci number and when added to the inability of the index to go higher, likely means that a major top has been, or is being, formed.

On a weekly closing basis, there is no resistance whatsoever until the 100-week MA is reached up at 1138. Nonetheless, on the monthly closing chart, resistance is strong at the 200-month MA at 1017. On a daily closing basis, there is no resistance until minor resistance is found at 1166. On a weekly closing basis, support is minor at 1004 and then nothing until strong support is found at 879/882. Below that level there is minor support at 825 and very strong support at 800. On a daily closing basis, there is minor to decent support between 994 and 997, and strong at 979. Below that level there is also minor support at 946 from a previous daily high close. There is also minor support at the 50-day MA at 936, and strong support at the most recent low close, as well as 200-day MA at 879.

In spite of the good fundamental good news received this past week, as well as the upward momentum that is still with the index, the SPX traded in a sideways fashion for the past 6 trading days. A week ago Friday the index closed at 1026 and every day this past week the index closed between a low of 1026 and a high of 1031. That is 6 days in a row that the SPX failed to show any direction of consequence. The same type of action was seen back between June 2nd and June 12th when the index traded sideways for 9 trading days. On that occasion, the end result was a correction that lasted 4 weeks and took the index down from a daily closing high of 946 to a daily closing low at 879.

With September historically being a down month for the indexes, it is likely that the index will be moving lower for at least the next 4 weeks. It must also be mentioned that Monday is the last day of August and the 200-month MA is currently at 1017. With the 200-month MA being an important line, on a monthly closing basis, the possibilities do favor weakness and a close on or about that line on Monday.

Based on the announcement that INTC is expecting higher sales for the next quarter, and the 10% rally seen in the stock on Friday, the indexes generated new 10-month highs. Nonetheless in the case of both the DOW and the SPX, the rally failed to generate any follow through and ended up closing the day in the red. Such action seems to suggests that good news is no longer enough of a catalyst to generate further upside.

Being in an overbought condition, reaching objectives mentioned by many analysts, and going into the historically weak month of September increases the probabilities of a correction occurring. In addition, many of the stocks in these indexes (including INTC) have also reached major resistance levels that are likely to prevent the stocks from going higher at this time.

Monday, which is the end of the month, is an important day in the SPX and the NASDAQ as both indexes have important monthly MA's that are in play. A close at or below 1017 and 2000, respectively, would show that the monthly resistance levels have held up well and if so, strong selling would likely occur for the month of September.