DOW Friday closing price - 16391

The DOW generated an up week as well as a close near the highs of the week, suggesting that further upside above last week's high at 16511 is likely to be see this week. In addition, the green close week makes last week's close at 15973 into another possible successful retest of the 200-week MA, currently at 15835. Nonetheless, in spite of the up week and the green close the bulls were not able to accomplish anything of consequence, meaning that no questions were answered with the rally and that the outlook remains short-term bearish.

The DOW remains within the chart parameters of a bearish inverted flag formation with the flag being the drop down 17750 to 15450 and the flag is the trading range seen the past 5 weeks back up to 16511. A break of the bottom of the flag at 15450 would give a 14211 objective.

The bulls in the DOW had ample opportunity this past week to break the top of the flag at 16511, having gone up to 16486 on Wednesday, up to 16511 on Thursday and up to 16410 on Friday. The inability of the bulls to break that chart level of resistance suggests a positive fundamental catalyst is now required to do so. As of late, oil prices have been the main catalyst and even though there is a possibility (not yet a reality) that oil prices have bottomed, no buy signal has yet been given, suggesting that at this time the bears remain in control.

To the upside and on an intra-week basis, the DOW shows minor to decent resistance at 16511 and minor at 16591. Above that level, there is minor resistance at 16643 and up to 16739, which is further strengthened by the fact it is considered general resistance (300 points below 17000).

To the downside and on intra-week basis, the DOW shows no support until the 16000 demilitarized zone, which is considered minor to perhaps decent support. Further minor support is found between 15803 and 15863 and then decent between 15370 and 15450.

On a negative note though, the DOW is now showing a total of 5 weekly closes in the vicinity of the 16000 level (16065, 16026, 16102, 15988 and Friday's close at 15973) to suggest that further downside, at least on a weekly closing basis, will ultimately be seen as so many multiple lows are likely to be broken.

It does need to be mentioned that DOW is presently showing 2 "rare" gaps this past week between 15974 and 16012 and between 16196 and 16217. This is not an index that generates gaps and as such the breakaway/runaway gap formation presently in place is either a bullish indicator or a major magnet, with magnet likely to be the case as there has been no major changes of fundamentals occurring.

It also needs to be mentioned that in 2011, when the DOW last tested the 200-week MA and generated a similar correction, the index spent a total of 9 weeks trading around the line before the uptrend resumed. The index is now into the 6th week since the line was first tested and based on last week's rally but inability to break out of the bearish flag formation, it does suggest that this week will be a red one, much like it was a red one on the 6th week in 2011. In the 5th week of 2011, the index closed on the highs of the week (closed at 11532) and the next week the index went above that level and up to 11550 (18 points higher) and then fell 953 points to 10597 and close out the week at 10771. Two weeks later the correction low was made at 10404.

Even though the DOW closed near the highs of the week and further upside above last week's high is expected to be seen, it does need to be mentioned that breaking the top of the flag by a few points does not negate the flag and given that there is further resistance in the index at 16591, it would suggest that the 2011 scenario could be repeated this week, especially if oil prices fail to rally, as is the likely scenario. Probabilities slightly favor the bears.

NASDAQ Friday closing price - 4504

The NASDAQ generated a green weekly close as well as a close near the highs of the week, suggesting further upside above last week's high at 4548 will be seen this week. Nonetheless, it cannot be said that the bulls have accomplished anything of consequence as no resistance levels have been broken, suggesting that the rally was mostly short-covering or a pause in the recent downtrend and that the selling interest will resume shortly.

The NASDAQ generated a weekly gap between 4369 and 4376 as well as a breakaway/runaway gap formation on the daily chart with a gap on Tuesday between 4340 and 4376 and on Wednesday between 4435 and 4555. Such a formation not only requires immediate follow through but a buy signal be given as well and that has not yet occurred, meaning that this coming week is pivotal for the bulls.

To the upside and on an intra-week basis, the NASDAQ shows minor resistance at 4591 and pivotal resistance at 4636. Above 4636 there is no resistance until minor resistance is found at 4838 and a bit stronger at the 200-day MA, currently at 4910.

To the downside and on an intra-week basis, the NASDAQ shows very minor support at 4447 and again at 4424 and then nothing until minor to decent support between 4292 and 4313 and then minor to perhaps now decent at the recent low at 4209. Further and decent intra-week support is found at 4116 and then at the 200-week MA, currently at 4060, which is weekly close support.

There are now "some" signs that the recent intra-week low at 4209 may be a bottom to this recent correction, given that the NASDAQ bulls were able to negate the previous 2 low daily closes at 4509 and at 4470 with Wednesday's close at 4534, followed by 2 additional closes above 4470 on Thursday and Friday. This type of action has erased some of the recent bearish selling interest. By the same token, there have not yet been any bullish statements made, either chart-wise or fundamental, to suggest that further upside of consequence will occur without first at least testing the recent low successfully.

The gaps in the NASDAQ mentioned above, especially the weekly gap, are all magnets to be closed as there have not been any positive fundamental changes to support such gap formations. In addition and going back 10 years, I have not been able to find any weekly open gaps that were not closed even in periods when the outlook was strongly bullish (which is not the case at this time). As such, the gap down at 4369 will be a magnet unless the bulls can get and generate a strong buy signal first.

The 4636 level, based mostly on a weekly closing basis but also somewhat intra-week, has taken on pivotal meaning in the NASDAQ, given that an intra-week rally and close above that level would be a buy signal, would negate the recent weakness and more importantly would negate the break of important support on the weekly chart that stood up for 14 months and that occurred 6 weeks ago. A close above 4636 would open the door for a rally back up to the 5000 level, meaning that enough of a recovery will have occurred to take most (if not all) of the ammunition away from the bears.

Nonetheless, the probabilities do not favor the NASDAQ generating any kind of a buy signal at this time, at least not before closing the gaps and retesting the recent 16-month low at 4209. As such, the big question is likely to be whether a new low below 4209 will occur or not. In 2011, the index did break the previous low by 33 points (4298 vs 4331) but the previous low seen this year at 4292 was broken with the 4209 low, meaning that another break is not necessarily "on the horizon". By the same token, a drop back down to the previous lows at 4292/4313 is highly likely to occur over the next couple of weeks, especially if the bulls fail to generate a buy signal this week.

The chart suggests the NASDAQ will rally up to the 4591 level this coming week (likely at the beginning of the week) but then reverse and begin to target all the downside objectives/gaps mentioned above. If the bulls fail to even get above last week's high at 4540, or even above last week's upside target of 4550, the disappointment will likely be strong and immediate and possible strong selling be seen.

SPX Friday closing price - 1917

The SPX was able to generate a pause in the downtrend, having produced a green weekly close, as well as a close near the highs of the week, suggesting further upside above last week's high at 1930 will be seen this week. Nonetheless, and like the DOW, the index is also showing a bearish inverted flag formation with the flagpole being the drop from 2081 to 1810 and the flag being the trading range up to 1947 seen the last few weeks. A break below the bottom of the flag at 1810 would offer an objective of 1676.

The SPX is facing a pivotal week, given that the bulls must negate the bearish flag formation and give a buy signal or be faced with a chart that has many magnets, starting with the multiple lows (4) between 1810 and 1820 as well as from the 200-week MA, currently at 1795. Simply stated, if the bulls fail this week, strong disappointment will likely occur.

To the upside and on an intra-week basis, the SPX shows minor resistance at 1930 and minor to decent, as well as pivotal resistance, between 1947 and 1950. Above 1950 there is no resistance until the 1993/2000 level is reached.

To the downside and on an intra-week basis, the SPX shows minor to decent as well as likely pivotal support between 1867 and 1871. Below that level, decent support is found between 1810 and 1820, minor at 1767 and decent support between 1810 and 1820. Below that level, there is very minor support at 1767 and minor but also likely short-term pivotal at 1737.

The SPX bulls have a tough road ahead as they need some positive fundamental news to occur to break the pivotal resistance between 1947 and 1950, especially considering the strong magnetism found with the multiple bottoms between 1810/1820 and the 200-week MA, that was seen repeatedly on a weekly basis (8 times) and that has yet to be seen once this year.

Probabilities favor the SPX getting above last week's high at 1930 but not getting even up to 1947 and then reversing to close on Friday in the red and on or near the lows of the week.

Oil has been the main catalyst for the indexes during the past couple of weeks and is likely to continue to be for the time being. Oil has built a double bottom at the 26.19/26.07 level but the bulls have not yet been able to confirm that it is a double bottom with a buy signal (requires a weekly close above 33.61), meaning that for now the trend in both oil and the indexes remains down. Nonetheless, the probabilities favor oil prices remaining in a downtrend. Today (Sunday) the following comment came out "Abu Dhabi biggest bank says U.S. oil prices may drop to $20" and that should keep oil under sell pressure, which in turn would suggest the indexes will also be under sell pressure.

This coming week there are quite a few economic reports due out with the 20-city Case/Schiller report and Consumer Confidence coming out on Tuesday, Home Sales on Wednesday, Durable Goods on Thursday and the 2nd estimate of GDP, Industrial Production and Capacity Utilization, as well as Michigan Sentiment on Friday. By the same token, recently economic reports have not been catalytic and it is not expected any of these reports will be catalytic unless they are way out of line (unlikely).

The recent chart action, especially the failure of the bulls to generate any buy signals, the expected continued fall of oil prices, and the chart points below in several of the indexes that are magnetic, suggest that another round of selling is likely to start this week.