DOW Friday close at 7278

The DOW was able to continue its recent rally with a higher close this past week than last week. Nonetheless, it is evident that the index got up into strong resistance when it reached, intra-day, the previous daily closing low at 7552 as well as the low weekly close from 2002 at 7528. At that level the index hit a brick wall and saw strong selling coming in, preventing the index from extending its rally any further. Nonetheless, based on the weekly chart, there is no tangible sign yet, that can be relied on to state that the upside rally is over.

The biggest factor helping the index rally was the action by the Fed on Wednesday announcing they would buy up to $300 Billion in Treasury Bonds over the next 6 months. The announcement was unexpected and caught the bears with their "pants down", causing the index to rally strongly intra-day. The rally did stall when the previous important daily and weekly low closes were reached. Nonetheless, such an event could underpin the market for the next few weeks, making possible downside objectives more difficult to be reach.

On a weekly closing basis, support is now very strong at 6627. On a daily closing basis, there is strong support at 6597, minor support at 7057 from the 20-day MA, and minor support again at 7117 from a previous daily low close. Psychological support will be found at 7000. On a weekly closing basis, there is no resistance until the 8046 level is reached (previous low weekly close of consequence) and then decent resistance will be found at 8281 (most recent high weekly close. On a daily closing basis, minor resistance will be seen at 7351, and strong resistance at Thursday's close at 7487. Above that, resistance is stronger at 7552 from the previous major daily close support. Resistance is decent as well at 7826 from the 50-day MA, and stronger up between 7940 and 8000 from 3 previous daily lows at 7940 as well as from a psychological basis.

It is important to realize that previous low closes are not always very strong resistances, but in this particular case they do represent price areas that were important for almost a decade, and therefore should be considered strong resistance. The index backed off, in an indicative way, and closed out the week in the lower half of the weekly trading range, thus increasing the chance that the index will be heading lower this week than last week. Such an event, if the index drops below the 7000 level, could be considered a possible re-test of the lows.

At this moment there is no clearly defined support level that can be considered a likely objective. Nonetheless, there is some support down at 7106 that should be reached if the index shows some weakness this week. The 7000 level should be considered a psychological support but there is no previous action on the way down or the way up that would make that level into a clearly defined support. The next possible support level is 6706 but the support there is at best minor to decent and cannot be counted on to stop the index on the way down should the index get down that low.

The DOW is now showing a successful daily close retest of the important 7552 daily closing low with a close on Wednesday at 7487 and two lower closes thereafter. Nonetheless, it is important to realize that on a weekly closing basis, the 7528 weekly closing low has not yet been tested successfully as this past week's close was still higher than the previous week but not high enough to suggest that a successful re-test has been accomplished. Such an event leaves the door open for some sideways action this week and a higher close next Friday.

The range for the week was smaller than the previous week (400 versus 726) and that likely means the index, though still generating bullish momentum, has run up against a resistance level that is not likely to get broken at this time. Nonetheless, it also means that the trading range this week could be small and generate two-way trading. It also means that the re-test of the lows might be a couple of weeks away from happening. With the close in the lower half of the week's trading range the possibility of lower lows this coming week are high. Nonetheless, the possibility also exists that the indexes will rally toward the end of the week and make a new daily close above 7487 while generating a weekly close near the 7528 level. All of this could happen without a new intra-day high being made.

I do believe that the key to the week will be the 7030-7106 level. A break below 7030 will generate new and aggressive selling, and probably a break down to the 6700 level. Nonetheless, a drop down to 7030-7106 could be just a small correction to the recent strength and a rally from that level back up to the recent highs would then be the end result.

Under this scenario, the possible trading range for the week could be 7106 to 7507, with a close next Friday around the 7500 level.

NASDAQ Friday Close at 1457

The NASDAQ was also able to close higher this week than last week and keep the possibility of a higher close next week open. Nonetheless, the index did run up this past week against several additional resistances of consequence that were tested successfully. Such action seems to slightly favor the downside this coming week.

It is evident that the 1500 level in the NASDAQ is as important as the 7500 level is to the DOW and the 800 level is to the SPX. With an intra-week high at 1509 and a daily closing high at 1491, it can be said that the index has tested those levels successfully. In addition, the index also tested intra-day the 20-week MA and tested successfully the 100-day MA (both at 1503). These are all good reasons to believe that the probabilities of the indexes heading lower this week is high.

On a weekly closing basis, support will be decent at the previous low at 1384 and very strong at the low made a week ago at 1294. On a daily closing basis, decent support is found at a low close made this week at 1404 and then between 1316 and 1321. Major support will be found at 1269. On a weekly closing basis, resistance is decent at 1476 (previous low weekly close) and strong at the psychological 1500 level as well as at the 20-week MA currently at 1503. On a daily closing basis, resistance is decent at the high daily close made this week at 1491 and strong at the psychological area of 1500 as well as the 100-day MA currently at 1503. Further resistance is also very strong up at 1534-1536 from two previous daily high closes of consequence.

In looking at the downside there is some decent support at 1434 but the most important short-term support is at 1398-1400. Not only was that level last week's low but it also was an important price level support from December. Add to that the fact that the 20-day MA is currently located at the same price and you have an area that will be strong support as well as an important short-term pivot point. Below 1398 there is no evident intra-day or intra-week support until the 1295 level is reached. In this respect the index differs from the other indexes inasmuch as a break below last week's low could bring in some strong selling this week.

With the fact the index closed in the middle of the week's range, contrary to the other 2 indexes that closed in the lower end of their week's range, it is safe to say that in this index both the upside and the downside are evenly matched. On the upside, if the index is able to get above the 20-week and 100-day MA, there is some decent resistance up at 1536. A rally up to that level would close the open gap that exists up at 1530. Nonetheless, on an intra-week basis, a break above those levels could also take the index all the way up to the 1603 level.

This anomaly sets the NASDAQ up as an important indicator to follow this week as higher highs than last week could be strongly bullish, likely generating a rally up to the 1603 levels, while lower lows than last week could be short-term bearish, likely generating a move back down to the 1295 level.

At this time I cannot say with any degree of certainty what trading range is likely for the NASDAQ this week. It is even possible that an inside week will be seen with lower highs and higher lows than last week. Nonetheless, the open gap at 1530 will likely be an important indicator should it be closed. Closure of the gap will shift the balance of power from the bears to the bulls, while a failure to close the gap could be a catalyst for a re-test of the lows and even further downside.

Possible trading range this week is 1434 to 1536, with a close around the 1500 level.

S&Poors 500 Friday close at 768

The SPX was also able to close above last week's close thus leaving the door open for further upside. Nonetheless, the index closed far below the 800 level where the resistance is strong on a weekly closing basis. Such a close seems to suggest that further upside could be seen this week, with a weekly close near the 800 level being the objective.

The SPX is an important index to watch as it represents the industry (financial) that created this mess in the first place. Much of the recent rally happened because financial stocks generated strong rallies over the last 10 trading days. Nonetheless, there seems to be no pending news of any new problem in the banking industry that could act as a strong catalyst for an immediate drop in price. As such, the probabilities of financial stocks giving up all, or most, of their recent gains is low.

On a weekly closing basis, support will now be strong at 683. On a daily closing basis, support is decent at 752, minor at 743 (from a minor daily close as well as from the 20-day MA, minor again at 696, and very strong down at 676. On a weekly closing basis, resistance is strong at the major double bottom at 800. On a daily closing basis, resistance is decent 794 (this week's high daily close) and strong at 800 (psychologically as well as from the 50-day MA).

Like the DOW, the SPX seems to suggest that the coming week will be a sideways trading range, with the possibility of a higher weekly close at the end of the week. Nonetheless, it must be mentioned that the index did test the 800 level, on a daily closing basis, with a close at 794 on Wednesday. In addition, the 50-day MA, presently at 800, was also successfully re-tested.

The possibility of the index heading above the 800 level is low, and yet the weekly chart seems to suggest that a weekly close at or just below 800 is likely. It is evident that the 740-750 level, on an intra-week and on a daily closing basis, is an important area of short-term support. Not only is the 741 level on the intra-week chart clearly defined but has also been mentioned by several floor brokers that have appeared on television. This does open up the possibility, like with the DOW, that the SPX could make lower lows than last week and generate a late week rally that would stop and close at or near the 800 level.

It is important to note that below 740 there is no support of consequence until the previous low at 666 is reached. Breaks below 740 would likely generate strong selling with a retest of the low as its objective. Nonetheless, the close on Friday near the lows of the day and in the lower half of the week's trading range suggests that further downside will be seen at the beginning of the week. A drop down to the 740 level seems highly probable but after that, things will be difficult to predict.

Probable trading range for the week is 741 to 796, with a close on Friday around 794.

The balance of power between the bulls and the bears seemed to sway back and forth during the week as news was made available. Nonetheless, by the end of the week the bears were able to gain a measure of control. Probabilities favor lower lows this week than last week but not sufficiently enough to generate a successful re-test of the lows.

This week will be like threading a needle. Picking the high, low and possible weekly close next Friday requires guessing as to what side will have the upper hand during the week and at the end of the week. There are many reasons to think the indexes will see lower lows than last week, thus supporting the bears. In addition, the support levels close-by are not that strong and cannot be counted on to hold. On the other side of the coin, the indexes have had upward momentum that has not yet been totally lost and the weekly closes last week were not high enough to satisfy the need for a successful re-test of the important weekly close resistance levels above. Under this scenario a higher close this week is certainly possible, giving the bulls some new ammo.

In addition, the chart of the NASDAQ seems to suggest higher levels, above this week's high, are possible, whereas the other 2 indexes don't show the same possibilities exist. One thing for sure, should the close-by supports in the indexes get broken (DOW at 6970-7030, NASDAQ at 3098, and SPX at 7140), the probability of a strong re-test of the lows will be high.