DOW Friday closing price - 17245

The DOW fell 668 points last week, which was the strongest drop seen since the third week of August when the index dropped 1109 points. The drop was eerily similar to the 680 point drop seen the second week of December of last year when the index dropped from 17960 to 17280, closely mimicking the 17900 to 17238 drop seen this past week. The index closed on the lows of the week and further downside below last week's low is expected to be seen.

The red close in the DOW on Friday effectively put a stop to the 2035 point rally seen over the past 6 weeks and also creates a successful and possibly major retest of the all-time high at 18351 that could spawn the beginning of a downtrend. With interest rates now likely to be raised in December, the fundamentals of the uptrend will change for the first time since 2008, meaning that the traders will likely have to wait to see how that change will affect the market thereafter.

To the upside, and on a daily closing basis, the DOW will show resistance between 17600 and 17635, which is where the 200-day MA is currently at, as well as where the previous low daily close of importance and that held up for 4 months (from Feb to Jun) is located. Above that level and on an intra-week basis, there is general resistance at 17700, minor at 17825 and decent at the rally high at 17977.

To the downside and on an intra-week basis, there is minor support at 17125 and decent between 17067 and 17037. Below the bottom of the 17000 demilitarized zone, there is no previous intra-week support until minor to perhaps decent support is found at 17633.

The DOW is likely to get down to the 17000 demilitarized zone this coming week, given the strong down move, the close on the lows of the week, the similarities with the drop seen last December and the lack of previous intra-week support of consequence until the 17037/17067 area is reached.

It should be noted that in December of last year, the DOW got down to 17067 (after the 680 points move down occurred the previous week) and a reversal then occurred, triggering the index to rally 817 points from that low to close in the green and on the highs of the week and causing the index to make a new all-time high the week after at 18103. From a purely chart point of reference such a move could also be seen this coming week given the similarities of the chart with what happened last December. Nonetheless, last year there was no threat of an interest rate hike, meaning that the index was not facing a fundamental change as is expected to be seen this year. As such, the traders are not likely to be as confident in reversing direction this coming week as they were last year.

The chart key this week will be the 17000 demilitarized zone that if broken would open the door for another 640 point drop before previous intra-week support is found. By the same token, nothing of great consequence is likely to happen until after the FOMC minutes come out on Wednesday, suggesting that the index is likely to trade between 17427 and 17067 for the first 2.5 days of the week (give or take 10-30 points on each side), which is exactly what was seen in December of last year.

Probabilities favor the bears in the DOW for the first 2 days of the week.

NASDAQ Friday closing price - 4927

The NASDAQ, like with the other indexes, is now showing a clear successful retest of the all-time high at 5231, having seen a high of 5163 the previous week and now 238 points lower, meaning that the door is now open for a downtrend to begin. In addition, the chart suffered quite a bit of damage last week, given that the stock closed below the psychological support at 5000 and also closed the runaway gap between 4926 and 4999 that now opens the door for the breakaway gap between 4707 and 4711 to be closed as well.

The NASDAQ closed on the lows of the week and further downside below last week's low at 4925 is expected to be seen this week. What makes matters worse is that the possibility/probability of a Fed rate increase in December is likely to keep a lid on the bulls having any success in rallying the index prior to the decision being announced, meaning that fundamentally the bulls are not going to have much support, especially since better than expected economic news is likely to increase the chances of a rate hike in December.

To the upside and on an intra-week basis, the NASDAQ will show minor to decent resistance at 4960 that is further strengthened by the 100-day MA, currently at that same level. Above that level, there is minor to perhaps decent resistance at 5008 and again at 5042. Decent resistance is now found at 5119.

To the downside and on an intra-week basis, the NASDAQ shows minor to decent support between 4888 and 4902. Below that level, minor to decent support is found between 4825 and 4842 and then nothing until decent support is found at the 4547 level.

The NASDAQ gapped down on Friday between 5004 and 4989 and did close on the lows of the week on Friday, meaning that if another gap occurs on Monday that the index will show a breakaway/runaway gap formation to the downside, which in turn would likely bring about additional chart selling interest. If such a second gap occurs and the Fed does not announce anything positive on Wednesday, the downside objective would be closure of the breakaway gap to the upside between 4707 and 4711.

The probabilities favor the NASDAQ trading down to the 4825/4842 level in the first few days of the week and then seeing a bit of a bounce as the traders await the FOMC minutes on Wednesday. Thereafter, the action will be influenced by whatever the Fed says on Wednesday.

Closure of the gap up at 5004 would be a small positive as it would also likely negate Friday's break of the 200-day MA. Closure of the gap would not change the fundamental outlook, which still depends on whether the Fed will raise interest rates in December or not. Nonetheless, closure of the gap would change the downside objectives of this drop, at least until December's rate decision.

The probabilities favor the bears in the NASDAQ, at least for the beginning of the week.

SPX Friday closing price - 2023

The SPX gave back 40% of the rally seen the past 6 weeks, having fallen 94 points after the 245 point rally that started the last week of September at 1871 and that culminated at 2116 the previous week. The index closed on the lows of the week and further downside below last week's low at 2022 is expected to be seen this week.

Like with the other indexes, the SPX is now showing a major successful retest of the all-time high at 2234, suggesting that the door is now open for a downtrend to begin if the Fed raises interest rates in December and the traders view that as a long-term negative.

To the upside and on an intra-week and daily closing basis, the SPX shows decent resistance at 2064, which includes 2 previous intra-week highs from December and January as well where the 200-day MA is currently located. Above that level, there is minor resistance at 2086 and then nothing until minor to decent resistance between 2093 and 2102 is reached.

To the downside and on an intra-week basis, the SPX shows no support below until minor support is found at the 2000 demilitarized zone. Further decent and pivotal support is found between 1970 and 1972. Below that it is open air until minor support is found at 1904.

Quite a bit of chart damage was done to the SPX this past week, given that 40% of the recent gains were given back in just 1 week, the 6-month level of support at 2039/2044 was broken and the stock closed convincingly below the 200-day MA (closed 41 point below). With no established support below until the 1970/1972 level is reached, it is also likely that the index will end up closing below the strong psychological support at 2000 that many analysts have stated would not be seen again.

It should be mentioned that the SPX is also somewhat mimicking what happened last December when the index dropped from 2079 to 1972 just prior to the announcement by the Fed that they would not be raising interest rates. With the Fed not due to announce until December whether they will be raising interest rates this year or not, it is unlikely that the index will reverse and generate a strong rally as it did last year. The problem the bulls will be facing is that below 1970 there is no established support until 1904 is reached, meaning that if the index trades below 1970 on Thursday, much further downside is likely to be seen.

Probabilities favor the SPX showing weakness at the beginning of the week but holding above 1970 at least until the FOMC minutes are released on Wednesday at 2.00p.

The market gave a strong short-term bearish signal this past week suggesting that no further upside will be seen until the December rate hike decision is made. What this means is that the probabilities favor the bears during the next 4 weeks unless the Fed announces something different on Wednesday's FOMC minutes. Nonetheless, that is not expected to happen.

The question this week will then likely be "how much downside will be seen?" Chart supports on all indexes are close by below and are likely to hold at least until Wednesday's FOMC minutes come out. After Wednesday, if those support levels break the short term correction will likely continue for another 4 weeks, meaning that this coming week is short-term pivotal.

Other than the FOMC minutes on Wednesday, the economic calendar for this week is bereft of catalytic reports, meaning that everything is likely to depend and pivot on what happens that day. Probabilities favor the bears though, as the one thing that is hanging over the market is the Fed rate hike expected to happen in December and until that occurs the bulls will have very little ammunition to generate any kind of lasting rally.