DOW Friday close at 9441

The DOW showed signs this past week that a possible top to the 6-month rally has been found. The index closed out the week lower than the previous weeks close and in the process had a classic reversal day on Tuesday, that not only tested successfully the previous high at 9630 but generated a move down from the highs of 305 points.

It has become quite evident that strong selling is now coming in on any rally and though the bulls continue to buy the dips, the upward momentum that the DOW has been enjoying, since the correction down to the 8017 level, seems to have come to a halt.

On a weekly closing basis, minor resistance is found at last week's close at 9544. Above that level, the next resistance would be psychological at 10,000. On an intra-week basis, though, there is decent resistance at the previous weeks high at 9630 as well as the high made the week of November 4th at 9654. On a daily closing basis, there is decent resistance at the high daily close made last week at 9581 as well as at the high daily close made in November 4th at 9625. On a weekly closing basis, minor support will be found at the most recent low close at 9321. Below that there is nothing until the 50-week MA currently at 8590. Below that level, very minor support around 8500, decent support at 8296, and strong support at 8147. On a daily closing basis, there is decent support at this past week's low daily close at 9281 and again at 9241/9256. Below that there is decent to strong support at 9135 and then decent support at 8937.

The DOW now seems to be in the process of building a top formation as any red close this week, if it comes before making a new daily close above the recent high close at 9581, will be seen as a successful retest of the highs. Such a successful retest would be the first definitive sign that a strong correction is likely to occur in September. As it is, September has historically been a negative month for the indexes.

This coming week is important and has to be considered a pivot week. The rally on Friday was not unusual, as history has shown that the indexes generally rally the Friday before Labor Day. Nonetheless, the DOW closed just above a decent resistance/pivot point level at 9437 and if the index shows follow through on Tuesday, a retest of last week's high at 9558 as well as the year's high at 9630 would be likely. On the other hand, if the DOW opens lower on Tuesday and holds itself below the 9437 level, the strong selling will resume and the index will likely take a stab at getting down to the psychological support at 9000.

It is important to note, though, that the index did close on Friday slightly above an important resistance level and if able to open higher on Tuesday, the bulls will immediately attempt to get the index up and above the previous highs at 9630. As such, it can probably be said that a higher open on Tuesday will be bullish, and a lower open on Tuesday will be bearish.

If the 9437 level holds up on Tuesday, drops down to the 9117 level will be probable. If the 9558 level gets taken out, new highs above 9630 will likely be seen with a possible objective of 9654. There are no reports of consequence until Thursday, as such, trading will likely follow whatever direction is set on Tuesday.

NASDAQ Friday Close at 2019

The NASDAQ had an eventful week by confirming that last week's high at 2059 was a successful test of the 100-week MA. In addition, with a lower close than the previous week, the index also gave notice that a possible top to this 6-month rally may have been found. It must also be mentioned that the monthly close on Monday was just a couple of points above the 100-month MA at 2000 and if the index closes lower in September, it will be seen as a successful test of that line as well.

The NASDAQ chart also showed signs that further upside may be difficult to achieve as the index generated a classic reversal day on Tuesday with higher highs, lower lows, and a close below the previous day's close. Not only was the selling strong but the index did generate a successful retest of the highs as well. Such action, if not reversed this week, is a strong indicator that further upside will be strongly sold.

On a weekly closing basis, resistance is decent at 2029. Above that level, resistance will be found at the 100-week MA, currently at 2061. On a daily closing basis, resistance is decent at 2029. On a weekly closing basis, support is minor at the most recent low weekly close 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 to strong between 1969 and 1970, as well as at 1931. Below that level there is nothing until 1862 is reached (previous high daily close of some consequence). Strong support is found between 1746 and 1765.

The index did see a strong late rally on Friday that was successful in generating a close above a previous resistance of consequence at 2009. Such a close is likely to generate a retest of the 2035 classic reversal high seen last Tuesday and if that intra-day level gets taken out, then another attempt at the 2059 high, as well as the 100-week MA currently at 2061 will likely be seen. By the same token, any red close this coming week, before a close above 2029 is made, will be seen as a successful daily close retest of the highs. If that happens, strong profit taking will come in and likely generate a break of support.

The NASDAQ is the only index that shows strong previous resistance levels close-by that date back to 1998. As such, it will likely be the best indicator of what the indexes will be doing this week. With September being a historically down month, the probabilities favor a failure. Nonetheless, the close on Friday was a positive and the bulls will have renewed energy to try to generate upside momentum again.

A red close on Tuesday would be a negative sign, while a close above 2029 would re-stimulate the upside momentum. A weekly close below 1986 next Friday would be bearish.

S&Poors 500 Friday close at 1016

The SPX, like the other indexes, also closed lower this past week than the previous week, giving notice that perhaps the top to this 6 month rally has been found. In addition, the weekly close on Monday was just a few points above the 200-month MA at 1017 (closed at 1020) and if the index closes lower in September, downside movement would be expected to follow.

The SPX also had a classic reversal day last Tuesday and though the index had a strong rally on Friday, the index was unable to get above a previous intra-day resistance high at 1018. Tuesday's reversal high and successful test of the highs was 1028, so between 1018 and 1028, strong selling should be seen.

On a weekly closing basis, there is minor resistance at 1029 (previous week's high). Above that level there is no resistance until the 100-week MA is reached up at 1132. On a daily closing basis, decent to strong resistance is found at 1029. On a weekly closing basis, support is minor at 1004 and then nothing until strong support is found 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 decent support at 994 and strong at 979. Below that level there is also minor support at 946 from a previous daily high close. There is also minor support at the 50-day MA at 936, and strong support at the most recent low close, as well as 200-day MA at 879.

The SPX is showing signs of a top being formed but for that to happen the index must generate a red close this coming week before a close above 1029 occurs. Such a close would be seen as a successful retest of the high close and would likely generate further strong selling. History has shown that the probabilities are high that the day after Labor Day is usually a red close. As such, Tuesday's action will likely be the most important for the week.

It is evident that the bulls will be trying to regenerate the upward momentum they had enjoyed for the last 8 weeks and the bears trying to put a stronger lid on the bull mentality. The battle between these forces will likely be most evident on Tuesday.

A close above 1029 will be a strong positive, while a close below 994 a strong negative.

The bears were successful this past week in putting at least a temporary lid on the upward momentum they indexes have been enjoying for the last 8 weeks. Nonetheless, the rally on Friday shook the confidence of the bears when the indexes were all able to break slightly above previous resistance levels that should have held up. It is evident that volatility is starting to return to the market as the VIX had a strong up and down week testing both the 100-day and the 20-week MA's this past week.

It is very evident that this coming week will be a decision week for at least the month of September. The probabilities do lie on the side of the bears because of the topping-out action seen this past week, as well as the historical bias toward a weak September. Nonetheless, the action on Friday will likely generate some follow through to the upside on Tuesday and if the bulls are able to generate enough buying to make new highs, the bulls will likely take that momentum and build on it.