DOW Friday close at 9665

The DOW gave a notice that perhaps a temporary top to the recent rally has been found when the index generated a "key" reversal on Wednesday with a new 12-month high, a lower low, and a close below the previous day's low. In addition, the index got up close to the 10,000 with a rally to 9917 and followed that up with a break of the intra-week low at 9726 and finishing near the low of the week. Such action increases the probabilities that the index will have a lower low this coming week than last week, generating the first high/low correction in 4 weeks.

It must be mentioned that the 10,000 level is a major psychological resistance and selling will increase anytime the index gets close. As such, it is evident that a strong positive fundamental piece of news is likely required to break that resistance.

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 10,350. On a daily closing basis, resistance is decent between 9792 and 9830. Above that level, no resistance is found except the psychological one at 10,000. On a weekly closing basis, minor support will be found at the most recent low close at 9441 and again minor at 9321. Below that there is nothing until the 50-week MA currently at 8515. On a daily closing basis, there is decent support at the previous high daily close at 9625 as well as the most recent low close at 9605. Below that level there is some decent to strong support at 9281.

The DOW, after generating a reversal on Wednesday, continued to the downside reaching a low of 9641 and closing out the week near the lows of the week. Nonetheless, the index was not able to generate a failure-to-follow-through signal as the previous daily high close of consequence at 9625 held up on Friday. As such, it is likely that strong buying will continue to be seen on dips.

The news this week was generally on the positive side with the exception of the Durable Goods report on Friday that showed a much larger drop than anticipated. Nonetheless, as mentioned before, until the new earnings season starts on October 7th, as well as the next round of important economic reports due out at toward the end of October, it is not likely that any strong moves in either direction will be seen.

At this time, though, the bulls do not seem to have enough power to generate a move above 10,000 and therefore it is possible that during the next 2 weeks further downside will be seen. Nonetheless, the bulls have already established the up-trend and therefore any weakness at this time can only be considered a short-term correction.

The DOW shows support of some consequence at 9253 with a weekly closing support at 9325. In addition, on the daily chart, there is decent support at 9398 from several previous daily closing highs as well as from the 50-day MA. It is probable that if further downside is seen this coming week that a drop down, anywhere from 9350 to 9400, could be seen over the next 2 weeks. During the week, the 9726/9735 level seems to have become a pivot point and resistance level of some minor to decent consequence. Above that, the 9855 level will be decent resistance for the next 2 weeks.

Based on the weak close on Friday and lack of important news this coming week, it is likely that the index will show further weakness this coming week with a possible trading range between 9726 and 9455. Nonetheless, it must be kept in mind that any daily close below 9625 could signal a failed breakout. If that happens, additional selling will be seen putting the index under some bear pressure for the next 2 weeks.

At this time, it is unlikely the DOW will be having any new attempts at the 10,000, leaving that situation until after the new earnings report season starts.

NASDAQ Friday Close at 2091

The NASDAQ gave the strongest indication that a high is in place when the index had a "key" reversal on Wednesday and then went on to confirm that the previous week's close at 2133 could be a successful retest of the major 2003 high at 2140. The high in 2003 was reached when the index bullishly rallied straight up from 1266 to 2154. In addition, with the rally this past week to an intra-week high at 2168, the index got into a very strong intra-week resistance level between 2152 and 2217 that lasted 2 years (between 2003 and 2005).

With the NASDAQ being the only index with clearly defined levels of historic resistance nearby, it must be considered as the index to follow at this time. It must also be mentioned that the selling that was seen this past week in the NASDAQ was stronger that in the other indexes. With the NASDAQ having been the percentage points leader on this rally, having been the percentage leader to the downside this week could be an additional signal that the top has been found.

On a weekly closing basis, resistance is now strong at 2133/2140. Above that level there is additional decent resistance at 2175/2178 and then even strong at 2212 from a previous low of consequence, as well as from the 50-month and 200-week MA's. On a daily closing basis, resistance is minor at 21.33 and decent to strong at 2146. Above that level strong resistance is found at 2175/2178 and very strong up at 2218. On a weekly closing basis, support is minor at 2019 and again 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 very minor at 2081, minor again at 2018 and decent to strong between 1969 and 1970, as well as at 1931.

In 2002 when the NASDAQ re-tested the 1135 low with a drop down to 1263, the index rallied up to a high of 2154 and a weekly closing high of 2140. The index then got down into a 6-month correction, which took it down to 1751. From that low the index then rallied again back up to 2199 and then got into a another 3 month correction which took it down to 1890. The index then got into another rally up to 2217 and then into another correction down to 2013. It took the index 2 years seeing only a 60-point rally from the original high, before the index increased its trend significantly.

The important thing to realize is that the indexes were in an "established bull market" in 2003 (not something that is yet established here). Also keep in mind that 2 weeks ago the NASDAQ closed at 2133 (very comparable to the 2140 close in 2003) and this past week the index closed at 2091. Such action makes the weekly 2133 close 2 weeks ago (2164 on an intra-day basis) look like a possible/probable strong top.

The charts from 2003 and 2009 are almost identical in every way. In 2002 the rally started at 1253 and in 2009 the rally started from 1266. In 2003 the first rally ended at 2154 and in 2009 the rally probably ended at 2168. In 2003 the first weekly closing high in the rally was 2140 and in 2009 (two weeks ago) the weekly closing high was 2133. Such mirror images must be respected, especially when there is no reason to believe the recovery in 2009 is better than in 2003, in fact there are many reasons to believe it is worse.

As such, the probabilities that the index has seen at least a temporary high for the next 6 months is very strong. Drops down to the 1750 level, over the next 3-6 months, are now probable.

If the high has in effect been set, the 2133/2141 level should now be strong resistance. Support is non-existent until the index gets down to 2023. At that level there is a gap between 2019 and 2023, as well as the 50-day MA at 2015 that should offer some support. Nonetheless, should the gap be closed, drops down to 1962/1970 could be seen. For this coming week, though, the 100-week MA, currently at 2042, should offer enough support to stop the index from falling further. Possible trading range for the week is 2123 to 2042.

S&Poors 500 Friday close at 1044

The SPX, like with the other indexes, had a "key" reversal on Wednesday after reaching an 11-month high at 1071. Many fundamental analysts had stated over the past few months that based on a PE ratio of 18-1 in the index that the upside objective was 1070. As such, it can be said that from a fundamental analytical basis it is possible to believe that until the new earnings season starts in October, that a temporary top has been found.

It must be stated, though, that at the 1071 level there is no previous chart resistance whatsoever, and anytime that an index stops and generates a "key" reversal at a level where there is no guaranteed chart selling expected, the reasons are likely fundamental as well as indicative.

On a weekly closing basis, there is now decent resistance at 1068 (most recent weekly high close). Above that level there is minor previous weekly close resistance at 1107 and decent resistance from the 100-week MA currently at 1118. On a daily closing basis, there is decent resistance at 1069/1072 from a small double top at that level. On a weekly closing basis, support is minor at 1016 and again at 1004. Strong support is found down 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.

Having closed near the lows of the week increases the probabilities the SPX will be heading lower this coming week. The index does have some minor support at 1035/1039 from a couple of previous intra-day highs as well as from a previous minor intra-day low. Nonetheless, on a daily or weekly closing basis, the first support of minor consequence is at 1016. Other than that there is no support of consequence until 994 is reached. The 50-day MA currently at 1013 might also stop any declines temporarily, but it does seems likely that if the index has found a temporary top, that drops down to the 1000 level are possible, and perhaps even probable.

Many financial stocks did reach or get close to resistance levels of consequence and those stocks saw strong drops occur during the latter part of the week. From that point of view, it can be surmised that further upside from here will require strong fundamental news to occur.

Having built a small double top on the daily closing chart between 1069/1071, it is unlikely those levels will be seen this coming week. On the 60-minute chart strong resistance is seen up at 1053 and it is probable that the index will be unable to go higher. Having had a 39 point range this past week and looking at a possible objective of 1013/1016, that would mean that getting up to 1053 but not higher is the best probability.

All 3 indexes had a "key" reversal day on Wednesday with higher highs, lower lows and a close below the previous day's low. In addition, follow through to the downside was seen on Thursday and Friday, thus confirming the reversal day as a valid and indicative sign. This coming week there are several economic reports due out but none of consequence until Thursday. In addition, in looking at the expected numbers of those reports, all are higher than last month. Having seen several reports this past week, such as Durable Goods and RIMM coming in below expectations, the indexes are now at levels that if the reports don't continue to be better-than-anticipated that selling will increase.

It must also be mentioned that the indexes closed near the lows of the week and the "normal" late-day rallies seen over the past few months, were absent during the last 3 days of this past week. As such, the probabilities are high that selling will continue to be seen, at least during the first few days of the week. Nonetheless, though weakness will be expected this week, strong weakness is not likely to be seen, if at all, until the new earnings report season kicks off on October 7th.