DOW Friday closing price - 25502
SPX Friday closing price - 2800
NASDAQ Friday closing price - 7642

The bulls failed this past week to keep the index market heading higher, having had a strong down day on Friday and generating a red weekly close after manufacturing numbers from Germany and France came in lower than expected. The indexes closed on the lows of the week and further downside below last week's lows (DOW at 25501, SPX at 2800 and NAZDAQ at 7642) are expected to be seen.

It is interesting to note that just the day before (Thursday), the SPX and the NASDAQ had made new 5-month highs and had closed near the highs of the day, suggesting that on Friday more upside would be seen, especially considering that there were no resistance areas anywhere close-by where the bears could mount a defense. The manufacturing report from Germany put a kibosh on that as the indexes opened lower and continued lower the rest of the day, ending up with losses versus the high seen on Thursday of 1.9% and 2.7% respectively. Here is a link to an article that shows how global profit downgrades continue to exceed upgrades among growth woes.

The big question now is "has the high for the rally been found"? This is a tough question to answer given that on April 12th (just 3 weeks away), the earnings quarter starts and there has been a strong tendency for the market to rally during the first 3 weeks of each quarter. In addition, the Fed announced on Wednesday that they are taking a slightly more dovish outlook to interest rate hikes and immediately thereafter there were analysts that predicted that there would be no more rate hikes this year and that there was a 50% chance that there would be a rate cut in 2019 and a 100% chance in 2020. Both of these outlooks would be bullish to the market. Last but not least, a downturn off of European economic woes does not necessarily impact our economic picture here other than create some negative effect on those companies that sell in Europe as well as on the trade picture.

Chart-wise, the fall seen on Friday did not yet do any damage as nothing of consequence has yet been broken. In addition, it has been expected that the remaining rally would have some backing and filling (peaks and valleys) as the indexes attempt to test and possible make new all-time highs. The SPX, which is the index most closely watched, does have an upside target of 2872-2895 to be reached within the next 2-3 weeks and given that it got up to a high of 2860, it was expected that the additional 12-35 points would not be straight up but in a backing and filling basis and that was not negated by the action seen on Friday. By the same token, the index did get down to a level of psychological support at 2800 that should not be broken on a closing basis, meaning that a signal could be given this week as to what the traders think and are planning to do.

The SPX did generate a failure signal on the daily chart, having closed on Friday at 2800, which is below the daily close breakout level at 2813. Nonetheless, that failure signal needs to be confirmed this week with another close below 2813 on Monday and more importantly the area between 2779 and 2813 is also important to the weekly closing chart, meaning that only a weekly close below 2779 would disappoint the bulls. A weekly close below 2743 would generate a new sell signal and confirm the high for the rally has been made. The weekly chart is always more important and indicative than the daily chart. It is also important to note that 3 weeks ago, the indexes showed weakness such as was seen this past week but the weakness was promptly negated with a strong rally and new rally highs the following week. At this time, there is no reason yet to believe it will not happen again.

To the upside and on an intraweek basis, the DOW shows minor resistance at 25657 and a bit stronger and short-term pivotal at 25814. Above that level, there is minor resistance at 26155, and then decent as well as pivotal between 26241 and 26277. Above that level, there is no resistance until decent at 26616 and then strong at the all-time high at 26951. The SPX will now once again show minor to perhaps short-term pivotal resistance at 2815, minor at 2852 and minor to decent at last week's high at 2860. Above that level, there is decent resistance 2872 and then nothing until minor at 2916 and strong at the all-time high at 2940. The NASDAQ shows minor to perhaps decent resistance at 7806 and then again at 7933, minor at 8107 and strong at the all-time high at 8133.

To the downside and on an intraweek basis, the DOW shows decent as well as pivotal support at 25207, which is further supported with the 200-week MA that is currently at 25202. Below that, there is minor but definitely pivotal support at 24883. TheSPX shows very minor support at 2764, daily close support at 2755, which is where the 200-day MA is currently at and then pivotal support at 2722. The NASDAQ shows support at 7600, daily close support at 7489, which is where the 200-day MA is currently at and then pivotal support at 7332.

This coming week does have quite a bit of economic reports though none are considering catalytic. On Tuesday, the Consumer Confidence number comes out and there is a possibility it will be the report that most helps or hinders the bulls. Last month it was expected at 125.3 and it came in at 131.4 and it helped the bulls. It is anticipated to come in at 131.5 and if lower it is likely to help the bears. Trade Balance, 3rd estimate of GDP, Personal Spending and Income are also due out this week but none is likely to generate much movement.

In looking at the daily and weekly chart of the SPX, both of them suggest that the index could drop as low as the 2750-2755 level on an intraweek basis. Anything less than that would have to be considered positive for the bulls. The 200 60-minute MA is currently at 2788 and it has some meaning as the index has only broken the line once since January 10th and the one time it did break the line it was only for 1 full day before it broke above it and continued the uptrend. As such, that line needs to be watched closely this week and if broken for 2 days in a row, it will be indicative.

It is close to impossible to assess what the index market will do this week given that it fell off of fundamentally negative economic news from Europe and fundamentally it cannot yet be assessed as to how much that changes the overall outlook for the U.S. market. Chart-wise though, the bulls maintain the edge, meaning the probabilities continue to favor the traders buying these dips and the index market continuing to move higher to the targets mentioned in last week's newsletter.

Nonetheless, this week is also important as far as the monthly close is concerned, which is Friday. As explained in last week's newsletter, the action seen at this time is somewhat mimicking what happened in the year 2000 when a downtrend began. In the year 2000, the indexes generated a negative reversal month on the 6th month after the all-time high was made, which also turned out to be the retest of the high, having come within 1.5% of the all-time high. This month is the 6th month since the all-time high was made last October and using last week's high in the SPX at 2869, if the indexes generate a red monthly close next Friday, it will once again somewhat mimic what happened in the year 2000, given that the retest will have come within 3% of the high and a negative reversal month will have occurred. Last month's close in the SPX was 2784 and in the NASDAQ it was 7532 and considering last week's action, both of those levels are easily reachable this week. In addition, this all blends in with the importance of the 2788-2800 in the index. As such, next Friday's close is likely to be a big clue as to whether the top to the rally has been found or not. A red monthly close next Friday would suggest the top to the rally has been found and that a downtrend may have begun.

The probabilities still favor the bulls but it is certainly to a lower percentage than it was last week.