DOW Friday close at 9605

The DOW was able to shrug off the recent signs of weakness and make, by a small margin, a new 10-month high this past week. The action was unexpected, as there was no news event that could be considered a strong catalyst for the reversal. Nonetheless, it is clear that at this time, evidence that the recovery of the economy continues to progress is keeping investors buying dips and preventing any significant correction.

On the other side of the coin, though, it is just as evident that the DOW has reached price levels, based on historic PE ratios and recent earnings reports, that show that higher valuations will be difficult to achieve without additional sales progress. Such information is not likely to be available until the new earnings report season in October kicks in.

On a weekly closing basis, there is no resistance seen until psychological resistance is found at 10,000. Above that level, resistance will be found at the 100-week MA currently at 10,440. On an intra-week basis, though, there is decent resistance at the first corrective high seen in November at 9654. On a daily closing basis, there is now strong resistance at 9625, from the double top that was made with Thursday's close and the one made on November 4th. 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.

On November 4th of last year, after the DOW had dropped below 8000 for the first time since 2003, the index generated the first corrective high up to 9654 (9625 on a daily closing basis). That high signifies the highest point reached during this recessionary period. As such, until the index is able to get above that level it cannot yet be said that the recession is over and that the market is back to being a bull.

The DOW had strong momentum to the upside last week and on Thursday was able to make a new 10-month high. Nonetheless, the index was only able to generate a new high by 19 points and in the process maintained itself below the recessionary high made in November at 9654. Such action seems to suggest that further upside, on a technical basis, will be difficult to accomplish before the new earnings report season gets started in October.

In addition, it must be mentioned that the close on Thursday was at the same price as the close made on November 4th at 9625. With the red close made on Friday, that close now has the potential for being a major double top. If the index follows up Friday's red close with another red close on Monday, the double top will be confirmed and the strength of that resistance will increase exponentially, giving traders a strong technical reason to sell, at least until the new earnings report season gets under way in October.

It is evident the DOW is still being supported on dips. Nonetheless, it is also evident by the fact that for the past 6 weeks the index has only been able to generate an additional 200 points to the upside and for the past 3 weeks only 29 points to the upside that the selling is just as strong on rallies. The index, then, seems to be at an impasse and with no "major" economic reports due out until next month, the weight of the overbought condition, as well as of the proper valuations evident at this time, the probability favors profit taking occurring.

It is likely the traders will try one more time to make a new high on Monday, but if they are unable to get the DOW above 9654, or more importantly to close above 9625, the probabilities will then shift toward a strong profit taking week.

NASDAQ Friday Close at 2081

The NASDAQ once again took the reins in the market and was the index that generated the most gains this past week. It is still evident that mid-cap stocks continue to get the most buying. Nonetheless, within the strict definition of a bull market, this type of action does not support that, as in a bull market the blue chip stocks would normally lead the way.

The NASDAQ, though, was successful in getting and closing above the 100-week MA currently at 2055 and on a weekly closing basis has no resistance of consequence until 2140 is reached. As such, the possibilities of further upside are high.

On a weekly closing basis, resistance is decent to strong at 2140. Above that level, resistance is strong at 2175. On a daily closing basis, resistance is minor at 2092. Above that level there is no resistance until minor resistance again at 2187 is reached. 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 NASDAQ is not generally the lead index in the market but with the fact it was able to break above the 100-week MA, the traders concentrated their buying here. In addition, the index did show strong weekly close resistance going all the way back to 1998 at 2057/2059. Having closed on Friday above that level likely means that buying will continue to be seen in this index this coming week. It also means that if the index confirms that breakout this coming week with another close above the MA line, that further upside can be expected.

Back in 2002 and looking at the second short-covering rally seen in that recession from a low of 1387, the index did go up to an intra-week high at 2099, before turning down and generating a new low 6 months later. Nonetheless, in that period of time the recession was still ongoing and there were few signs that the recession was over, contrary to what is happening now.

On a negative note, though, the NASDAQ does show that the 2099 to 2192 level is considered a probable "stopper" as there have been 3 occasions in the past 8 years, 2 of them in a bull market (2004 and 2005), from which a strong correction occurred. As such, even if the index is able to head higher from here, the upside does seem to be strongly limited.

A close below 2055 next Friday will negate this week's breakout and generate a failure to follow through signal. It would also be seen as a successful retest of the 100-week MA, even though the line would have been broken slightly. It is unlikely that the NASDAQ will be moving higher if the other 2 indexes are not. As such, the index still depends strongly on what the DOW and the SPX do this week. In both of those cases, the likelihood of higher prices is low. In addition, the index did leave an open gap this week between 2019 and 2023 that will be a magnet if the index is unable to generate any further upside.

S&Poors 500 Friday close at 1042

The SPX, like the other indexes, also generated a new 10-month daily and weekly closing high this past week. Nonetheless, like with the DOW the index just got up to its October08 first correction intra-day high at 1044 (got up to 1048 on Friday). As such, it cannot yet be said that the index is back into a bull market.

Nonetheless, it is also evident that any further upside at this time will break the last resistance left in the chart and generate another strong run up. With no resistance seen on the chart until the 100-week MA currently at 1130, it means that a new high on Monday will bring in aggressive chart buying by traders.

On a weekly closing basis, there is very minor resistance at 1053 and then nothing until strong resistance at 1157. On an intra-week basis, there is strong resistance at the 100-week MA currently at 1132. On a daily closing basis, very minor resistance at Thursday's close at 1044. 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 bears in the SPX are hanging by a thin thread with the October intra-day corrective rally high at 1044 being the last and only resistance close-by they can see. Nonetheless, that level has been in play for the last 2 trading days and on Friday the index was able to make that level into a bit stronger resistance by closing in the red on Friday. Nonetheless, both the SPX and the NASDAQ are relying on the stronger resistance found in the DOW to stop any further movement upward, at least until the new earnings report season gets under way in October.

It is important to note that the SPX has not yet given any sell signal on the weekly chart, not even a small one, since the rally began in March. Nonetheless, with previous week's close at 1016 being a small corrective low, a small sell signal would be generated if the index is able to close below that level this coming Friday. With the index only 26 points away from such an event happening, the possibilities continue to increase as the upside movement decreases. Keep in mind that over the past 3 weeks, the index has only been able to generate a move up totaling 10 points (1038 high Aug25th and 1048 high Sep11th). It is evident the momentum is slowing down and putting the index more at risk of turning down every day.

It is also important to note that with the exception of GS most banking stocks have shown a top formation in effect and lower levels over the past few weeks. In the case of GS, it too is reaching a level of resistance that seems difficult to overcome at $182 (stock closed at 174.70 on Friday). As such, it doesn't seem probable that the SPX has a lot of ability to go higher if the banking industry has, in effect, found levels difficult to go above.

The SPX does have some psychological resistance at 1050 and with the high on Friday at 1048, it is unlikely the index will be able to make new highs by any kind of significant margin. Nonetheless, it is evident that much of the attention this week will be on the DOW as that index will probably be the leader this week.

There is no more "wiggle" room left in the indexes. For the past 5 weeks the indexes have managed to "eke out" new highs and wiggle themselves from one minor resistance level to another. Nonetheless, with nothing but free space above in the charts, any further upside will likely generate aggressive buying as there are no close by levels where selling can be expected to materialize.

By the same token, with what could still be a bear market rally that is now into its sixth month (the standard for bear market rallies), the possibilities have increased that profit taking will begin to occur. With no economic news of great consequence due out until October, and with September usually being the weakest month of the year for stocks, it makes sense for the bulls to take profits at this time. Such action would allow the traders to see where the strong support is located while waiting for the earnings reports to confirm that the recovery is alive and well.

Continued buying at this time would likely put the market into a bubble situation that could be disastrous if the reports in October don't back up the recovery. As such, I even believe that the forces behind the strong up-trend (Fed, banks, etc) would welcome a temporary respite.