DOW Friday closing price - 24331
SPX Friday closing price - 2861
NASDAQ Friday closing price - 9121

The indexes are a story of three different worlds affected differently by the Corona Virus. Evidently the DOW continues to be the most negatively affected as the industries and companies involved have been severely affected by the unemployment, lack of use of products by the public due to the isolation orders in place and the likely closure of business due to the losses incurred already. The SPX has also been negatively affected by the virus but less so given the financial support being given by the Fed and the government that has allowed financial institutions to keep producing their products at a lower rate of use but also with much less costs involved, and the NASDAQ which has actually enjoyed an uptick in purchasing due to the isolation orders in place as more people have turned to the internet and technology for their needs. The DOW has only recovered 47% of its loss, the SPX has recovered 61% of its loss and the NASDAQ has recovered 93% of its loss. This dichotomy between the indexes has only been seen once before, during the dot.com era. By the same token, the story then and the story now are totally different and as such, very difficult to evaluate, especially now where the opening of the economy is beginning to be seen and the internet and technology use might suffer some downfall.

The statement above is purely fundamental but due to the dichotomy of the fundamental picture the normal chart approach that has consistently applied in the past during 99% of the time (such as indexes working in some form of harmony) is not working now and it has made traders unsure of what to do. This in turn, has made confidence in the charts decline indicatively so. As such, I will attempt in this newsletter to expand the information to apply to each individual index rather than the index market as a whole.

Let me begin with the DOW. The index made a new 2-month high weekly close on Friday but only by a few points above the previous one at 24242 (closed at 24331). Nonetheless, the index did not make a new 2-month intraweek high as the previous recent high is at 24764 and that is still 400+ points higher than Friday's close and therefore difficult to achieve a break of that level as there are yet no possible fundamental factors to be released over the next 4 weeks that would give the bulls new ammunition to take the index higher. In addition, there is a fair amount of previous low weekly closes of some importance that would need to be broken convincingly but are not likely to do so, such as 24271 and at 24285. Nonetheless, if the index generates another green weekly close next Friday, there is still one more and slightly stronger low weekly close at 24815 that would be even more difficult to break than the ones mentioned above. Simply stated, the index probably has no more room to the upside other than at most another 700 points up to the 25,000 level (based on intraweek moves. This mean the "max" upside would likely be at most another 2% rally. To the downside, any daily close below 23664 would generate a short-term sell signal. Using the weekly closing chart, a close below 23723 would be a clear sign that the uptrend is over as it would generate a sell signal (which has not happened yet since the rally began), as well as a break of the 200-week MA, which is currently at 28813. This evaluation of the DOW can also be applied to stocks in the index, such as AXP and CAT, which are presently being held short in the portfolio. Minimum downside objective would be 22445 after the index finds a top to this rally.

The SPX did generate a positive reversal week and a close on the high of the week, suggesting further upside above last week's high at 2932. It also made a new rally weekly closing high but like the DOW, did not make a new intraweek high, falling short by 22 points. Nonetheless and with the index being stronger than the DOW, the probabilities of making a new intraweek rally high are decent, especially since on an intraweek basis there is no resistance of consequence until the 3020/;3027 level, meaning an additional 100 points higher can still be seen, meaning a 3.2% further upside appreciation. By the same token and on a weekly closing basis, there is minor to decent resistance between 2945 and 2952 and then decent between 3007 and 3025. Simply stated, more but limited upside is likely to be seen but then a drop back down to retest the lows would then be seen. Minimum downside objective would be the 2600 level.

The NASDAQ continues to be very difficult to evaluate but there are some factors that can be used this week to come up with an upside projection. Those factors are based more on the index stocks rather than the index itself but given that the index companies are the ones driving the index, they need to be the key. First stock to evaluate is AMZN that reported lower than expected earnings a week ago and that is not likely to change at this time, meaning that the stock chart can be used. The stock gapped down after the earnings report and that gap should be closed as the company is too strong to allow a gap to remain open. The stock closed at $2379 and the gap is at $2395. Resistance is found between $2424 and $2445, meaning that a 2.7% rally up can still be seen. By the same token, a drop back down to $2279 is a high probability, meaning that if the stock gets up to $2445, a 7% drop is likely to be seen at some point. FB is near all-time highs and unlikely to make them at this time so there is very little help the index can obtain here. AAPL has reached a level of resistance, which is where a sell signal was given (at 309.51) and that suggests that no further help is to be seen here and lastly there is GOOGL which closed on Friday at $1384 and weekly close resistance is found at $1432, which was also the breakdown point where a sell signal was given and therefore unlikely to go above that level. In addition, the stock has the initial breakaway gap between $1478 and $1436, also suggesting that it won't be closed. This means that further upside of about 3.7% could be seen.

When you put those 4 stocks in the NASDAQ for evaluation, it suggests that no further upside above 3.7% will be seen. By the same token, when you average the 4 stocks and their upside potential, what you get is a 1.6% upside potential for the index. With the index closing at 9121, it does suggest the max upside potential is for another 145 points, meaning up to 9266. In looking at the chart of the index itself, the initial breakaway gap is between 9542 and 9322 and there is existing intraweek resistance at 9451, which is minor and unlikely to be reached. As such and using the big stocks in the index, the max upside seems to be 145 points with less being the probability. This would suggest the index will generate a negative reversal week to the downside this coming week. Probable minimum downside for AAPL is a drop of 18.5%, for AMZN it is 7%, for FB it is 17% and for GOOGL it is 13%. Averaging those minimum downside targets for those stocks would suggest a correction back down of approximately 14%, meaning that from the potential upside target of 9266, a drop down to 7968 could occur. This fits in well with the chart given that 8109 was a breakout for this rally and a drop down to the 8000 level would be the minimum to be expected.

The caveat to this evaluation is that it is mostly based on mathematics of the main stocks and their upside chart objectives. It is not based on Fundamentals because at this point no one can evaluate them rationally given the nature of this economic problem. This is clearly stated by many of the companies themselves that in their recent earnings reports, they refused to give guidance for the future (something they always do). If the companies themselves cannot evaluate the future, much less can traders do so. The evaluation above is an attempt to make sense of what has happened and is most likely to happen based on both charts and the fundamentals that are currently known. Evidently the dichotomy between the indexes is abnormal, having only happened once before in the last 25 years. I have attempted to leave my own personal emotions aside and come up with a viable evaluation of what is possible and maybe even probable of what will happen under the conditions presently known. One thing for sure though, there are no economic or earnings reports of consequence left for another 4 weeks at least and that means that there are no scheduled catalysts to the upside or the downside likely to appear.