DOW Friday closing price - 17128

The DOW had a wild week after the Fed discount rate was hiked, having rallied 274 points initially on Wednesday but then falling a total of 672 points in the last 2 days of the week. The index closed on the low of the week and further downside below last week's low at 17124 is expected to be seen this coming week.

The DOW gave a sell signal on all charts (intra-week, daily and weekly close), having made a new 2-month low as well as closing below the low weekly close made in January at 17136, suggesting the index is likely to get back into the correction area between 17000 and 15370 seen between August and October if the last intra-week support at 17037 is broken convincingly.

The bulls in the DOW are facing a difficult week, given that it is Xmas and participation will be low and finding enough strong buyers after a sell signal was given will be problematic. In addition, the rate increase will fundamentally weigh heavily on the index until such a time that the positive effects of the change are shown by the economic reports to come next year, none of which will show the change at this time and as such, the next few weeks are more likely to bring in more selling interest than buying interest.

To the upside, and on a daily closing basis, the DOW will show minor but likely pivotal resistance at 17575, given that it is where the 200-day MA is currently at. Evidently and after the reaction seen of the rate increases, that line will be used as a measuring stick for short-term trend. Above that level, the 17676 to 17700 general resistance area has to be considered another minor but pivotal resistance that if broken would negate the drop seen at the end of the week. Further resistance will be found at last week's high at 17796.

To the downside and on an intra-week basis, the DOW shows decent and likely short-term support at 17037/17067. Below that level, there is very minor support at 16887 and then "open air" until the 16000 demilitarized zone is reached.

Though participation will likely be less this coming week, the DOW has averaged weekly trading ranges of 643 points over the past 6 weeks and even though Thanksgiving week was an exception having seen a trading range of only 185 points, it is unlikely that the traders will "sit still" this week, given the change in the fundamental outlook and the fact this coming week is the last week of the year that yearly profits can be taken. This is certainly a consideration for the traders as it is probable that the index will open and trade lower at the beginning of the year.

The traders will start the week facing an important and pivotal support level between 17067 and 17037 (which were the lows seen last December and February and considered at the time a double bottom) that when broken the third week of August, caused the index to take a plunge over a period of less than 2 weeks to 15370. With lower number of traders, no established support below the bottom of the 17000 demilitarized zone, the price of oil likely to head lower and no fundamental reason to buy at this time, it would not be surprising to see the DOW take another plunge this coming week if that level of support (just 101 points lower) is broken.

In looking at the weekly chart and considering the importance of the change in the fundamental picture, a drop down in the DOW over the next 2-3 weeks to retest the 200-week MA, currently at 15685, would not be "out of the question". Probabilities favor the bears.

NASDAQ Friday closing price - 4923

The NASDAQ had a very negative week, given that the index made a new 9-week low, closed below an important weekly closing support at 4927 (thus giving a sell signal on the weekly closing chart), and closed on the lows of the week, suggesting further downside below last week's low at 4871 will be seen this week. In addition, the red weekly close confirmed that the close seen 3 weeks ago at 5142 was a successful retest of the all-time high weekly close seen in July at 5210, thus giving the traders strong chart reasons to believe that a at least a mid-term top has been built.

The NASDAQ generated a gap on Friday between 5002 and 4984 that the bulls tried to close in the first 20 minutes of trading, having taken the index up to 4996 before the selling pressure took over. Nonetheless, the gap was not closed and since it is likely that the gap was news-oriented by the rate increase on Wednesday, it is possible that it is a true breakaway gap, especially considering that it came at 5000 that is considered a pivotal level. If another gap down is seen this coming week, the breakaway/runaway gap formation will be formed and that would be a strong negative that would likely stimulate another round of selling.

To the upside and on an intra-week basis, the NASDAQ will show minor to decent resistance at 5008 and again at 5042. On a daily closing basis though, resistance will likely be found at 4975, given that it is where the 200-day MA is currently located. Above that level and again on an intra-week basis, resistance is not found until the 5114/5119 level is reached.

To the downside and on an intra-week basis as well as on a daily closing basis, the NASDAQ shows decent support between 4888 and 4908 that if broken would suggest the bears are once again in control. On a weekly closing basis, minor but short-term pivotal support is found at 4871 that if broken would likely bring about at least a drop down to 4821 but probably down to the 4700 level. On an intra-week basis though, a drop below 4825 would open the door for a drop down to the 4547 level that has been important and pivotal support for the past year.

The NASDAQ is showing a strong top formation built over a period of 5 months and given that the fundamental picture (rate hike) has weakened the fundamental outlook, at least for the short-term, the probabilities now favor the August and September lows (at 4292 and at 4487, respectively) to be tested.

It should be noted that the NASDAQ closed below the 50-week MA, currently at 4950, and the last time that occurred (August) a drop down to 4292 was seen within 2 weeks. The target of that move down was the 100-week MA, which is a line that has also always been an important and indicative trend line for the index. The 100-week MA is currently at 4670 and given that the line has been seen (and broken intra-week) on 2 occasions over the past 5 months, it is a viable downside target if the bulls fail to hold the support area between 4825 and 4871.

The chart of the NASDAQ looks top-heavy and with no fundamental help likely to be found over the next few weeks, the bears are probably going to be in control. As I mentioned above, the 100-week MA is a viable objective but the last 3 times that line was seen it was broken intra-week, meaning that the probabilities favor the index getting down to the 4547 level, which would be considered a retest of the 4292 and 4487 previous lows. Probabilities favor the bears.

SPX Friday closing price - 2005

The SPX confirmed the sell signal given the previous week on the weekly closing chart, with another red close on Friday. Nonetheless, the bulls were able to keep the close above the psychological support at 2000, meaning that further sell pressure needs to be seen this week to give the bears' short-term control. The index closed near the lows of the week and further downside below last week's low at 1993 is likely to be seen.

The SPX, just like with the DOW, has pivotal support close-by at 1972/1980 (from the lows seen last December and February) that if broken would trigger additional and likely strong selling. Having closed near the lows of the week and having seen a 1993 low on Friday, the probabilities suggest that at the beginning of the week the support level will be tested and depending on what happens there, the traders will decide what to do the rest of the week.

To the upside and on an intra-week basis, the SPX shows minor resistance at 2020, minor to perhaps decent between 2039 and 2044 and decent at 2076.

To the downside and on an intra-week basis, the SPX shows decent and pivotal support between 1970 and 1980. Below that level, there is no support until minor support is found at 1904. Decent to perhaps strong support is found at 1867/1870.

The SPX chart shows an unclosed gap between 1951 and 1954 and given that gaps are rare in the index and unclosed gaps even rarer, the traders are likely to target that area if the support at 1970 is broken. By the same token, the chart shows no previous intra-week support below 1970 until 1904 is reached, meaning that just like with the other indexes, a break of support this week is likely to cause a sharp drop in price.

Just like with the other indexes, the SPX is likely to retest the August and September lows at 1867 and 1871. A drop down to the 1904 level does seem to be have a high probability of occurring over the next few weeks. Probabilities favor the bears.

The Fed hiked interest rates for the first time in 8 years and though the initial reaction was positive, the result by the end of the week was negative. The interest rate hike has to be considered an initial negative as it strengthens the dollar (making our exports more costly), it makes borrowing money more expensive than it has been for the past 7 years, and makes companies less likely to expand due to the higher costs of expansion. With the fundamental benefits of the rate hike likely to be longer term (not short-term), the outlook for the indexes has to be considered negative for the next few weeks or even couple of months.

The positive of the rate hike is that the traders will no longer be depending on their "sugar-daddy (the Fed)", which likely means that trading off of chart support and resistance levels will be adhered to more by the traders than over the past 7 years.

There are a few economic reports of consequence this week, with the 3rd estimate of GDP, Personal Income and Spending, New Home Sales, Michigan Sentiment and Durable Goods scheduled. Nonetheless, since none of these reports will have any effect now on the Fed and the interest rate scenario, the probabilities of any of these reports being catalytic is minimal. With the indexes closing negatively on Friday, the probabilities favor the bears this week.