DOW Friday close at 9712

The DOW, after closing the previous Friday on the highs of the week and on a very positive note, ended up the week giving a negative statement in which definitive signs were given that a top has been found to the 8-month rally. The index closed slightly below the 50-day MA, at the same level that is closed the previous month (9712), and below the most recent daily low close at 9763.

It must be noted, though, that the weakness seen was in spite of continued positive earnings reports as well as a better-than-expected GDP number. Weakness in the face of strength has to be classified as a distinctive sign that the index no longer has the ability to go higher without "extremely" positive news.

On a weekly closing basis, there is strong resistance up at 9996. On a daily closing basis, there is decent to strong resistance at 9963 and strong resistance between 10081 and 10092. On a weekly closing basis, decent support is now found at the most recent low close at 9488, and then very minor support at 9441. Below that there is minor to decent support at 9325/9321 from a previous low as well as a previous high weekly close. Below that there is nothing of consequence until the 50-week MA is reached at 8610. On a daily closing basis, there is strong support at 9488 and a bit stronger at 9281 where a previous low close of some consequence is found, as well as the 100-day MA.

With good fundamental news being unable to generate any kind of a lasting rally in the index, and then closing on the lows of the week, in spike type action, it is probable that the DOW will continue heading lower this coming week. In addition, the index closed below a decent daily close support level at 9763, thus generating a likely sell signal.

Nonetheless, what happens Monday will be very important as the index should generate some immediate follow through to the downside breaking below the 9685 low seen on Friday, as well as below the psychological 9700 support in the DOW. If this is indeed the top, strong selling should come in on Monday, thrusting the stock down to the next level of support at 9430 (9488 on a daily closing basis).

A cautionary note must be inserted here, though, because the week of September 28th the DOW also had a drop of 380 points (this past week was 387) and closed near the lows of the week. Nonetheless, on that week the index did not see any follow through the following week, opening higher on Monday and ultimately generating a new 12-month high a few weeks later. Though things seem to be different now, because of all the additional signs given that this is in effect a top, the big key will be whether there is follow through to the downside on Monday or not. If the top has indeed been found (likely) follow through to the downside will be seen, targeting the next support level at 9430 (9488 on a daily closing basis). Though the next support level is 9430, the increased volatility, wide trading ranges, and lack of strength by the bulls this past week, could cause that level to break and thrust the stock down to the next, but stronger level of support, at 9261 (9281 on a daily closing basis). The reason why that level is considered stronger support is because the 100-day MA is currently at 9260, thus giving the bulls some reason to defend it more vigorously.

The signs given this past week suggest that the market is at least at the beginning of a strong correction and that drops down to the 9000 level, or perhaps even as low as 8700 could occur over the next 4-6 weeks. Nonetheless, even though the signs are there, confirmation is needed this coming week in order for the bulls to get into a strong profit taking binge, as well as the bears get aggressive. Like I said up above, the big key will be this past weeks low at 9685. A break of that level by at least 10 points should bring in follow through selling.

It is likely, though, that the bulls will attempt to rally the index one more time before giving up the ship. There is decent resistance at 9773 and again at 9834. Rallies up to that level, especially on Monday, are possible. Nonetheless, if the bulls are unable to get the index to get above those levels, strong selling will re-appear. Possible trading range for the week is 9834 down to 9430.

NASDAQ Friday Close at 2045

The NASDAQ certainly got the brunt of selling this past week, dropping 5.1% in value, compared with the 2.6% in the DOW and the 4.1% in the SPX. In addition, the NASDAQ was the only index that closed below the previous weekly low close (2148), as well as deeply in the red below last months close (2122). In this respect, it can be said, with a certain degree of certainty, that the index has found a top.

The drop in the index was even more impressive after one considers that the index was the recipient of two of the best earnings reports from last quarter (AAPL, AMZN) and only AAPL generated a negative weekly close. Having been the index that led the other indexes to the upside during the last 8 months, the fact it received the most selling this past week likely means the bulls were "abandoning ship".

On a weekly closing basis, resistance is very strong at 2157. On a daily closing basis, resistance is strong at 2173/2175, minor at 2165, and decent at 2098. On a weekly closing basis, support is decent at the 100-week MA currently at 2010, and again at the psychological support at 2000. Below that, there is very minor support at 1986 and then nothing until 1750 is reached. At that level there is a previous important low weekly close as well as the 50-week MA. On a daily closing basis, support is decent at the 100-day MA currently at 1990. Below that level there is decent support at 1967 and again at 1930. Below that there is nothing until the 200-day MA is reached currently at 1786.

Two weeks ago the NASDAQ reached a very strong level of resistance that was in effect during the last bull market between 2003 and 2005 between 2141 and 2185 (index closed 2 weeks ago at 2154). With the spike down action seen this past week, the index has given notice that it is not likely that level will get broken any time soon, as such, a corrective phase is now likely in effect. In addition, having closed below a strong support level at 2048, on both the daily and weekly closing charts, suggests that follow through will be seen this coming week with the first objective being the strong psychological support at 2000.

The NASDAQ does have a psychological support level of great consequence at 2000 that is not likely to get broken easily. Nonetheless, it must be mentioned that supports below 2000 are minor in nature and if the level does get broken, drops down to the next level of strong support between 1750 and 1790 would be likely.

It must also be mentioned that since the week of November 17th, when the market was in the middle of the crisis, the index had not seen a weekly drop of 144 points, as was seen this past week. As it is, during the past 11 months, there have only been 2 other weeks where that kind of a trading range was seen (both to the upside) and they both generated aggressive action the week after. If that thinking follows through, it is possible that the index will drop all the day down, at least on an intra-week basis, to an intra-week support at 1930. Possible trading range for the week is 2071 to 1930.

S&Poors 500 Friday close at 1036

The SPX fell a total of 4.1% this past week and like the NASDAQ the index had the biggest one-week drop in the last 10 months, giving notice that further downside action is likely. In addition, the index confirmed that the previous weeks rally up to the 100-week MA at 1101 was a successful retest of that line. As such, the probabilities of a strong correction occurring from these levels has increased.

The SPX also closed below the decent daily close support at 1043/1044, in the process giving a sell signal if another close below that level is seen. If that happens, intra-week drops down to the 1000 level will be probable.

On a weekly closing basis, there is now decent resistance at 1068 and strong resistance at 1088. On a daily closing basis, there is now decent resistance at 1066 and again at 1072. Strong resistance is found between 1093 and 1098. On a weekly closing basis, support is decent to strong at 1025, minor at 1016 and again at 1004. Strong support is found down at 879/882. On a daily closing basis, there is decent to strong support at 1025. Below that, there is decent support at the 100-day MA currently at 1000, as well as at 994. Strong support is found at 979.

If the SPX shows any follow through this coming week, drops down to the 100-day MA currently at 1000 are highly likely. There is decent support, on both the daily and weekly closing chart, at 1025, but being this close to such a major psychological level such as 1000 is, seems unlikely that it will get spared from testing.

The big question mark this coming week will be whether a sell signal on the weekly closing chart will be given. A close next Friday below 1025 would be a sell signal, but with quite a few small supports between 1000 and 1025, the index will have problems breaking down, at least on a weekly closing basis. Nonetheless, on the other side of the coin, if follow through weakness of consequence is seen, the bears will likely push the index down to a level of intra-week support at 978 that is both reachable and important. Based on last weeks trading range of 59 points and using Fridays close at 1036, that level is certainly reachable. Keep in mind that below 978 there is no support whatsoever until the 50-week MA is reached down at 913, as such, that level must be considered a magnet for the bears if strong weakness is seen.

It must also be mentioned that during the bull market of 2003-2006, the biggest correction that was seen in the SPX was 109 points. If the market is a bull (big if) using the recent high at 1101, as well as the numbers from 2003 and 2005, it would mean that the lowest level to be reached would be 994. This is certainly something the traders will be looking closely at the next couple of weeks.

There are certainly a lot of "angles" in play this week, nonetheless, it all starts with the intra-week low seen 5 weeks ago at 1020. That level has to be considered an important pivot point this week, as it has been the low for the last 8 weeks. A break of that level will put the bulls on the defensive and relying mainly on the psychological support at 1000 as well as the weekly closing support at 994.

The indexes, right across the board, gave strong signs this past week that a top has been found. Volatility increased strongly (sign of a trend change) and sell signals were generated on the daily closing chart of all the indexes. In addition, the trading ranges of the NASDAQ and the SPX surpassed any down trading ranges since the middle of the crisis was occurring, suggesting strong profit-taking taking place.

All this negativity occurred in the midst of very positive fundamental news that suggests that the traders are no longer looking at the recent news but are looking more at what the market will be doing 9-12 months down the line.

All the negativity will need to be confirmed this week, with further downside, before the action this week will be taken seriously. Nonetheless, there doesn't seem to be any catalysts in view this coming week that could change the mentality of the market. As such, the probabilities strongly favor the bears.