DOW Friday close at 12479

The DOW gave a convincing statement this past week that the upside, at least for the short-term (2-3 months), is over and that rallies back up toward the 13000 level will be heavily sold. The DOW had a "classic" reversal week with higher highs, lower lows, and a close below the previous week's close. In addition, a double top was built up at the 13130 level and that makes this week's statement a defining one.

The DOW had a 677 point range this past week and that is the widest weekly trading range seen since the re-test of the lows and reversal upward seen back in the middle of March. That week in March the index tested the 11640 low with a drop down to 11757 and then rallied up to 12462 and generated a 705 point trading range. That week was also the beginning of the 1380 point rally the DOW has seen over the past 4 weeks. It is interesting to note that the high of that week was 12462 and the low this week was 12460. This likely makes the 12460 level an important intra-week pivot point for the next few weeks.

Resistance, on a daily closing basis, will now be very strong up at 12743, as that was a major resistance prior to the recent break above and up to the 13130 level. If that level should break, the 13000 area will now be major resistance. It is unlikely, though, that the DOW will now be able to get above 12743, on a daily closing basis, unless some major fundamental piece of news is seen. Support will be very strong down at 12099-12110 but on an intra-day basis, drops down at 11940 could be seen. Using the daily closing chart, support will be decent down at 12182, and minor at 12280-12320.

This coming week, a wide trading range as well as increased volatility should continue to be seen. On an intra-day basis, rallies up to 12768 as well as drops down to 12250 are possible. Nonetheless, based on the weak close on Friday, it is not likely the DOW will have much rally strength initially. I would venture to say the range this week will be 12250 to 12628. As to which level will be seen first, I have no idea as of this writing.

For the last 4 weeks, the DOW was considered to be in a short-term up-trend but with an overall sideways trend in place. This has seems to have changed into a short-term downtrend with a likely overall sideways trend in place. Nonetheless, the threat of a general downtrend resuming is strong and must be considered.

It is likely this coming week no major long-term statements will be made, other than the fact that on the short-term the bulls have lost their momentum and the bears now back in control. The most probable scenario for the next few weeks is a trading range between 11940 and 12770. With the summer doldrums looming and the earnings report period nearly at an end (and not due to re-start for another 6-8 weeks) it is likely that after this coming week the volatility will die down and choppy two-day trading will resume.

The strongest probability scenario is an index trading sideways in a wide range, but with a slight downward bias.

NASDAQ Friday Close at 2444

The NASDAQ also had a strong "classic" reversal week with higher highs, lower lows, and a close below last week's low. Nonetheless, the weekly close was only 1 point below last week's low as well as 1 point below the weekly closing support at 2446. In addition, the index did not break below the 50-week MA, as did the other two major indexes. This means the sell signal in the NASDAQ was not as defining as in the DOW. Based on these facts, it is possible the NASDAQ will continue to outperform the other indexes over the next couple of weeks.

Nonetheless, the NASDAQ chart does show that it too has found the likely top to a sideways trading channel and that a short-term downtrend is now in effect.

Resistance in the NASDAQ will be strong at 2499-2504 (2483-2489 on a daily closing basis) and major at the previous high of 2551 (2534 on a daily closing basis). On a weekly closing basis, resistance will be very strong between 2503 and 2515, and major at 2529. Support, on a daily closing basis, is found between Friday's closing price of 2445 and down to 2441 (2429 on an intra-day basis). The next support level, on a daily closing basis, is also quite strong at 2377 (2383 on a weekly closing basis). It is also where the 50-day MA is currently located. If that level is broken, strong support is not found again until the 2280 level is seen, though at 2343 several important previous highs are located.

It is important to note that the index did hold Friday above an intra-day low of some consequence at 2429 (low on Friday was 2430). That price was the intra-day low seen before the rally up to the 2551 level. For that reason alone the NASDAQ should be the index to watch on Monday as it is likely to show the immediate direction for the week, depending on whether the level holds or doesn't. The NASDAQ chart seems to point to a possible trading range for the next two weeks between 2503 and 2377. Whether the upside is visited first or not, will likely depend on whether the 2429 level holds up at the beginning of the week.

Overall, the chart seems to say that the index will be in a trading range for the next 6-8 weeks between 2500 and 2280.

S&Poors 500 Friday close at 1376

This past week the SPX was able to reach and test successfully the 50-week MA at 1440 (on an intra-day basis), as well as close right at the 200-day MA at 1425 (on a daily closing basis). In addition, the index gave a sell signal with a classic reversal week as well as a close below the previous daily and weekly close at 1388. As it is, the SPX has proven itself in the past to be the chart leader of the indexes. With all the chart points reached and tested, as well as the clear sell signal given with the reversal week and close below support, it is now evident this index is clearly saying the recent up-trend in the market is over.

Nonetheless, Friday's daily close at 1376 (above an important daily closing support at 1374) seems to state that the index is not yet ready to collapse and that it will likely get into some choppy trading with a downward bias, as it is heading down to its projected lows.

Resistance in the SPX will now be very strong at 1400-1407 and, on a daily closing basis, major at 1418-1420. Support is strong, on a daily closing basis, at 1374 as well as from the 50-day MA currently at that same price. Below 1374 there is good support at 1364 from a previous intra-day low of consequence as well as from the 100-day MA. Below that level there is no support until 1324 is seen (1334 on a daily closing basis).

Like with the NASDAQ, the SPX is likely to re-test the recent highs at some point. Rallies up to at least the 1407 level if not the 1418-1420 level are probable, though it is not clear whether the re-tests will occur before the 1324 level is seen or after.

The likely scenario is for a drop down to the 1364 level this week and a trading range of 1364-1400. A rally either up to 1407 or 1423 would then likely be seen the following week. During the next few weeks, drops down to at least the 1324 level are to be expected, but depending on how bearish this recent downturn turn out to be, drops down to 1270 could be seen. The height of the rally next week could help determine the severity of the downturn.

As I have often mentioned before, the SPX has been the chart leader for the last couple of years. By hitting all of its upside objectives, in such a perfect manner, it is evident this is still the index chart to follow when making decisions regarding the overall market. It also seems evident at this time, that the SPX has been and will be generally trading between the 100-week and 200-week MA's at 1414 and 1313 respectively. Until such a time that the fundamentals give a clearer picture of the future, this is a highly probable trading range for the next few months.

Now that the earnings report quarter is over and the Fed is on a stated hiatus from further rate cuts, the market has little to go on, at least from a bullish stand point. The PPI figure this past week was slightly bearish, indicating that inflation is slowly creeping into the economy and the market reacted in a negative manner to those figures. With very little bullish help on the horizon, at least until the next round of earnings reports, and the strong drop in all the indexes this past week, it is evident that all upside rallies will be met with strong selling. Such a scenario has put the bears back in firm control, at least within the stated sideways trading range parameters.

It is likely that a general bearish tone to the market will now be in effect for the next few weeks. Investors, though, are still hoping that the Fed action of the past 3 months will be sufficient to help generate a turn around or recovery starting the end of this year or beginning of next. Until such a time that news bears that out, one way or the other, the market is not likely to "fall out of bed" and therefore move in a wide trading range without any long-term direction.

This coming week will likely begin to define where the buying interest begins, depending on how low the indexes get to. Next week it is likely that a short-covering rally will occur and if it happens, it will also help define where the selling interest will be in the near future. Use these two weeks to determine a trading strategy for the summer.