DOW Friday close at 10023

The DOW did a strong about-face this past week after the FOMC announcement on Wednesday when the Fed stated that the economy has kept improving, as well as from Thursday's announcement of the purchase by Warren Buffett of Northern-Burlington railroad for $46 billion dollars. The purchase of the railroad was viewed by the investment community as an affirmation of Buffett's bullishness of the US recovery.

These two events, in spite of a bearish unemployment report on Friday, truncated the momentum that the bears had built over the past 2 weeks and rallied the index above 10,000 once again. The DOW ended up the week making a new 13-month weekly closing high and leaving the door open for further upside this coming week.

On an intra-week and weekly closing basis, there is decent resistance up at the 100-week MA, which is currently at 10112. On a daily closing basis, there is decent to strong resistance at 10081 and 10092. On a weekly closing basis, decent support is now found at the most recent low close at 9713 and again at 9488. On a daily closing basis, there is minor support at 9949 and again at 9763. Decent to strong support is down at 9713 and again at 9488.

Once again the 50-day MA, on a daily closing basis, held up (this time at 9715) and generated a rally much like the one seen in October. In addition, the general support/resistance (9700/10300) found at major levels such as 10,000 also held up, thus preventing the index from continuing on to a major correction as many had expected. When these chart factors were added up to the positive statements by Buffett and the Fed, the market turned around and the bears scrambled to cover their shorts while the bulls took advantage once more of the up-trend that has been in effect since March.

Based on the new 13-month weekly close on Friday, the probabilities favor further upside this coming week with a possible 10300 objective (top of the general support/resistance level of a major area such as 10,000). Nonetheless, there are several factors in play that might prevent that from happening, starting with the fact that the 100-week MA is currently at 10112 (the 100-week MA is considered a very strong resistance level on charts). Keep in mind that line was not reached a couple of weeks ago when the index rallied up to 10119, as the line was up at 10186 at the time. Nonetheless, the 100-week MA is now within reach without making new 13-month intra-week highs, which are currently at 10119, giving that area added resistance strength.

The DOW outperformed the other indexes this week and it could mean that this index could end up making new 13-month highs but not be confirmed with new highs in the other 2 indexes. Both the NASDAQ and the SPX show strong chart reasons to believe that new 13-month highs will not be made. Nonetheless, the DOW could do so without upsetting the overall chart outlook of the market.

It is likely that Monday will be a day that gives some clue as to what will happen. The 60-minute chart of the DOW shows a 5-wave down trend over the past 2 weeks, followed by a 3-wave up move generated the past 3 trading days. Such a pattern is a classic Elliot wave that suggests that this rally will fail (not make new highs above 10119) and that new 2-week lows will be made shortly. This would allow for the index to open slightly higher on Monday (above Friday's high of 10044) and then sell off from there. If that happens, then this entire move up the last 3 days would be negated and the selling pressure seen over the past couple of weeks would resume. In addition, this could prove to be a test of the 100-week MA, a successful retest of the previous high at 10119, as well as a double top on the intra-week weekly chart if the index rallies up above 10100 but fails to make a new 13-month high.

As you can see, the DOW is certainly facing some decent chart obstacles for this coming week. In addition, the selling pressure seen over the past few weeks, in spite of very good news, has to be a factor in the minds of the traders. Such successful selling pressure could resume quite easily and negate everything the bulls accomplished the latter part of this past week. It must also be mentioned that having had the bears on the defensive on Friday and not delivering a killing blow could be seen as a sign of weakness.

On the downside, it is evident that Friday's low at 9937 will be important as a break of that low will likely mean that the bulls have lost their recent mojo. Nonetheless, a break below 9917 would likely be confirmation that the index is heading lower as that is a previous low, prior to the recent rally, that was important. As such, the trading range between 10119 and 9917 must be considered a trading range with no clear direction, while a break above or below either of these two levels a telling sign of further movement in that direction will come.

NASDAQ Friday Close at 2112

Having been the index hit with the strongest selling over the past couple of weeks, the NASDAQ was unable to accomplish very much to the upside this past week in spite of the rally in the overall market. The index did generate a double support level of consequence on the weekly closing chart at 2045/2048 that will likely give further strength to the index this coming week. Nonetheless, the NASDAQ did not even get close to the resistance levels above, giving doubts as to the overall strength of the rally.

The NASDAQ had been the index leading the way to the upside up until the last couple of weeks, as well as the main index to follow on the charts using the numbers from the last recession in 2001/2002. As such, the recent weakness seen in the index gives reason to believe that this week's rally in the market does not have strong legs underneath.

On a weekly closing basis, resistance is minor to decent at 2133 and very strong at 2157. On a daily closing basis, resistance is minor at 2131, decent at 2146, and very strong between 2165 and 2173. On a weekly closing basis, support is now strong at 2045/2048, and decent at the 100-week MA currently at 2000. On a daily closing basis, support is minor at 2060, and strong at 2045/2048. Below that there is nothing until the psychological support at 2000.

The NASDAQ failed to reach the psychological support at 2000 or the 100-week MA at 2010 this past week. Nonetheless, the index did drop down to 2024, which can be considered a retest of the line. With the late week rally the index was able to generate a higher weekly close than the previous week thus making the previous week's close at 2045 is a very strong support level, when added to the previous low close at 2048.

With no resistance of consequence until 2131/2133 is reached, the probabilities seem to favor further upside this week generating a retest of the weekly closing high at 2157 as well as of the intra-week high at 2191. On an intra-week basis, the NASDAQ shows some resistance at 2141, stronger resistance at 2168, and major resistance at 2191. Moves up to the 2141 level seem to be likely. Nonetheless, a weekly close above 2131 will be difficult to accomplish.

It is likely that the NASDAQ will continue to be the index that determines just how much more movement to the upside could occur. Having shown a weekly close at 2157 a few weeks ago and that level being right in the middle of a 3-year weekly closing high resistance of consequence dating back to the last recession in 2001/2002, it is unlikely that further upside above that level will be seen. If that is the case (likely), the probability that this latest rally, and whatever upside is seen this coming week, is simply part of a major top building formation is high.

On 4 of the last 6 weeks the NASDAQ has had weekly trading ranges in excess of 100 points, with the last 2 weeks having been 144 and 112. Support intra-week is now strong at 2041 and if that level holds up (likely), the trading range could be something like 2041 to 2141, or even up to 2168. That trading range would fit in perfectly with the recent pattern as well as with the support/resistance levels presently in play.

Once again, I do want to mention that the NASDAQ has been, and will likely be, the index to follow on the chart.

S&Poors 500 Friday close at 1069

The SPX got close this past week to a strong and important weekly close support at 1025 when it dropped down to 1029. Nonetheless, the index was able to hold that support and rally to close near the highs of the week, giving notice that the likely topping out formation is not yet fulfilled on the weekly chart. As such, further upside this coming week is likely to be seen.

It must be mentioned that the SPX did reach the 100-week MA 3 weeks ago and dropped strongly after reaching that level. That was a clear sign that line will be difficult to break without some additional fundamental news of consequence. Nonetheless, a retest of the recent high at 1101, as well as of the 100-week MA currently at 1092, is certainly possible.

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 1072, minor resistance at 1093, and strong resistance at 1098. On a weekly closing basis, support is decent at 1036 and strong at 1025.On a daily closing basis, there is decent support at 1043/10044, minor support at 1036, and strong support at 1025.

Having held the support at 1025, on both the daily and weekly chart, the SPX rallied during the latter part of the week and now finds itself looking to generate a retest of the previous high, as well as of the 100-week MA once again. If the retest is successful, the topping out formation will be fulfilled on both the daily and weekly charts, and the index will have no reason to generate any further upside after that.

The SPX does show decent weekly close resistance at 1068 and though it closed on Friday at 1069, it did not close above that level by a substantial amount, thus leaving the door open for a lower close next Friday and a successful retest of that resistance. Nonetheless, intra-week, it is probable that a rally up to at least the 1080 level, if not the 1092 level where the 100-week MA is currently located will occur.

The momentum in the index was strong on Friday and there is no reason to believe the momentum will change the first part of the week. As such, it is expected that the index will follow through to the upside during Monday and probably Tuesday. There is decent to strong intra-week resistance at 1080 that will probably be the objective of the traders this coming week. A rally up to that level is probable.

Support will be decent around 1041 and with last week's trading range having been 42 points, a trading range this coming week between 1041 and 1080 seems not only possible but probable.

Overall, though, the probabilities that the SPX found a top to the 8-month rally when it rallied up to 1101 are high. A rally this week up to 1080 would fulfill all the requirements for a needed successful retest of the highs on the weekly chart. If that is what occurs, the probabilities would increase exponentially that a strong correction would occur thereafter. By the same token, any close above 1101 would be a strong buy signal for continuation of the up-trend.

It is important to note that it is usual when an index is topping out, after an extended rally such as what has occurred over the past 8-months, that the previous high will be tested successfully on both the daily and weekly charts. This is especially true when there has been no negative news that would cause an abrupt stop to the rally. All the indexes have shown successful retests of the highs on the daily chart but not on the weekly chart. As such, it must be assumed at this time that is what is now happening.

The possibilities do exist that the opposite is true and that the indexes are simply renewing their up-trend after yet another minor correction. Nonetheless, there are many reasons to believe that further upside of consequence from these levels will be difficult to accomplish. As such, if the indexes do rally this week (expected) but are only able to reach the resistance levels mentioned above without breaking them, it must be assumed that the top has been found and that an extended correction is about to occur.

The DOW did make a new weekly closing high and does not have the kind of resistances above that the other 2 indexes have. As such, it is probable the DOW will be the strongest index this week. As such, special attention will need to be given to the SPX and the NASDAQ as they will likely be the indexes that point the way.