DOW Friday close at 9685

The bulls were able to generate a strong rally this past week in the DOW taking the stock up 404 points from the low of the week to close on the high of the week and making a new 12-month weekly closing high in the process. The index accomplished this without any major change of fundamentals other than a higher than expected earnings report on AA as well as continuing weakness in the dollar.

After the AA report the bears got on the sidelines giving up on all the gains they had accomplished the previous week deciding to await the next round of earnings and economic reports of consequence due out on Wednesday and Thursday.

On a weekly closing basis, there is psychological resistance at 10,000 as well as at the 100-week MA currently at 10240. On a daily closing basis, there is no resistance, other than psychological at 10,000, until minor resistance is found at 10851. On a weekly closing basis, decent support is now found at the most recent close at 9488, minor support at 9441, and again at 9321. Below that there is nothing until the 50-week MA currently at 8515. On a daily closing basis, there is minor support at 9726 and a bit stronger at 9665. Strong support is found at 9488.

It is evident that until signs that the economy is regressing, the bulls will continue to buy dips. Nonetheless, their ability to generate upside movement of consequence under the present scenario of better-than-expected earnings based on cost cutting and not on new sales will also be limited. The index has already moved up over 50% in value based on the existing recovery, as such, it is possible to say that no new buying of consequence will occur until it is evident that from here on in, things will continue to get better.

On a technical note, it is important to note that if the DOW gets up to 10476 it will not only fulfill the objective of the inverted Head & Shoulders formation that was broken several months ago, but will also reach an important 61,8% Fibonacci correction number. As such, if reached, 10476 should be considered to be the "absolute most" this rally can attain.

With the DOW closing on the high of the week, the probability of higher numbers being seen this coming week is very high. As such, the recent intra-day high at 9917 should be taken out early in the week, especially since there are no reports of consequence due out until Wednesday. The area between 9970 and 10030 is a psychological resistance level so it is possible, maybe even probable that the index will get up to that level on Monday or Tuesday. Further upside than that is unlikely until the earnings and economic reports come out later on in the week. At that moment, movement will likely be based on how the reports come out and are evaluated by the traders. This means that from a technical basis, a print of 10,000 is the only rational thing that can be expected to be seen this week.

It is important to note that the DOW was able to make a new 12-month weekly closing high this past week and in order for further buying of consequence to continue, the index will need to confirm the breakout with another close above 9820 next week. If it fails to do so, this rally will be considered a false breakout and strong selling will ensue.

Nonetheless, with such a slew of earnings and economic reports of consequence due out between Wednesday and Friday, including JPM, GS, and IBM, as well as a slew of economic reports starting with the Retail Sales on Wednesday (an "A" report) and Initial Claims, CPI, Industrial Production, Capacity Utilization, Mich Sentiment, Philadelphia Fed (all "B" reports), the close next Friday is far from a foregone conclusion.

The rally this past week does show that the sentiment is presently positive and that the traders are expecting that the reports will continue to show improvement. As such, the bulls will have the upper hand this week, at least until such a time that the reports come out.

NASDAQ Friday Close at 2139

The NASDAQ was also able to make a new 12-month weekly closing high above the high made 3 weeks ago at 2133. Nonetheless, even with the new high close, the NASDAQ continues to be the one to watch on the charts as it is the only index that still has previous resistance levels of consequence above.

In addition, even though the index broke above the previous weekly closing high at 2133, it was not able to close above the 2003 high close at 2140. It must also be mentioned that during the last 2 weeks, the index now shows 5 intra-day highs between 2138 and 2141 and if not able to get above that intra-day high next week, it could mean that Friday's rally in the indexes was manufactured by the day-traders.

On a weekly closing basis, resistance is strong at 2140. Above that level, the index shows strong resistance again at 2175 and at 2185. On a daily closing basis, resistance is decent to strong at 2146. On a weekly closing basis, support is strong at 2048 and minor at 2019 and again 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 decent at 2035 from the 50-day and 100-week MA. Below that level support is minor at 2018 and decent to strong between 1969 and 1970, as well as at 1931.

The comparisons in the chart between the rally in 2003 continue to be seen and that means that further upside, even with the new 12-month weekly closing high made on Friday may not mean much. It bears mentioning again that in a "3-year" period between 2003 and 2005, when the market was a bull, the NASDAQ was only able to generate one intra-week high of 2217 and no better weekly close than 2185. With the index closing at 2139 this past week, the fundamental comparisons between 2003 and 2009 do not favor much further upside at this time. It is highly unlikely, therefore, that the index will be able to generate any further upside above what happened during those 3 years.

Based on the intra-day resistance seen during the past 2 weeks at 2138/2141, it is likely that from the start of trading on Monday, some short-term decisions (3-8 days) will be made. Having closed on the high of the day/week on Friday, follow through is expected to be seen on Monday. A break above the 2141 area should take the index up to the recent high at 2168 and probably up to the high seen the first week of 2005 at 2192. Certainly if the DOW is able to get above its recent high at 9117 and get up to the 10,000 level, there would be no reason to expect the NASDAQ to stop here. On the other side of the coin, though, if the index is unable to get above 2141 this week, it would be a strong negative that could bring in aggressive selling by the bears.

It is evident that the NASDAQ is the index to watch for clues as to what will happen, from the onset on Monday right through the earnings and economic reports due out later on this month. Based on the comparisons with 2003/2005, even if the earnings and economic reports are better than expected, the index should not be able to generate much more upside than 2217 (78 points higher) at any time. Keep in mind that not only is 2217 the highest point seen during the bull market of 2003/2005, but it is also where the 200-week MA is currently located. If it is able to get above that level it will mean the market is untradeable at present, at least from a chart perspective. The NASDAQ is, without a doubt, the best barometer available at this time.

S&Poors 500 Friday close at 1071

The SPX, like with the other indexes, also made a new 12-month weekly closing high on Friday, nonetheless, it was unable to get above the intra-week high seen 3 weeks ago at 1080 or close above the previous daily closing high at 1072. As such, the rally on Friday is suspect.

The SPX, with the green close on Friday after a previous close at 1025, did generate a successful test of the minor support at 1016. In addition, with the close on the highs of the day/week on Friday, is likely to get some follow-through this week carrying it up to the next psychological resistance level at 1100 and/or the 100-week MA at 1110.

On a weekly closing basis, there is no resistance until the 100-week MA at 1110 is reached. On a daily closing basis, there is decent resistance at the previous high close at 1072. On a weekly closing basis, support is decent to strong at 1025, minor at 1016 and again at 1004. Strong support is found down 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 support at 1044 and strong support at 1025 (most recent low close and 50-day MA). Below that, there is decent support at 994 and strong at 979.

Having closed at the highs of the week there should be follow-through to the upside on Monday. If the index is able to get above the 1080 intra-day high seen 3 weeks ago, it should rally up to at least the 1100 psychological resistance. Nonetheless, if that happens this week, it will be likely that the index will get up to the 100-week MA at 1110.

It is important to note that with the straight up move seen this past week, no support of any consequence has been built near-by. As such, the slightest bit of negative news or disappointment could generate a drop of 50 points, down to the 1025 level, in a jiffy. This will certainly be true if the reports this week come out negative, nonetheless, if the index is unable to get above the recent intra-day highs at 1075 and at 1080 on Monday, there will be some disappointment that will probably generate profit taking.

It is also important to note that to the upside the SPX shows no resistance of consequence, other than the 100-week MA at 1110, until the 1142/1160 level is reached. This means that if the news is strong, the index could continue to generate, over the next few weeks, an additional 6-8% rally from Friday's close. Nonetheless, the 1142 to 1160 area did stop the index for a period of 8 months back in 2004. As such, that is probably the max rally that could be seen.

This past week was surprising as the news that came out was not of such consequence as to generate a 4% rally in the indexes. Nonetheless, it is evident that the bulls will continue to look to buy all dips until such a time that some strong negative news comes out. Due to the close on the highs of the week on Friday, follow through should be seen on Monday. If the highs seen 3 weeks ago are taken out, the indexes will probably continue to move higher, until at least Wednesday, when the next slew of important earnings and economic reports are due out.

This week is very important, both from a fundamental and chart basis, as the bulls have committed themselves to generate higher prices, based on the new 12-month weekly high close. Any failure to do so, especially on a weekly closing basis (next Friday) would be a strong sell signal that would not be easy to overturn. Monday and Tuesday, due to the lack of news, are likely to be strong up days with the DOW getting up to 10,000 and the SPX up to 1100.