DOW Friday closing price - 11018

The DOW reached a "major" objective and resistance level this past week when the index got up to the 200-week MA at 11120. The 200-week MA has to be considered the most important long-term chart trend indicator available as it has proven to be, over the past 20 years, the line (pivot point) that has established, determined, or confirmed the major trend for at least 2-4 years at a stretch, or longer. It must be noted that the 200-week MA is currently on a down-trending arch and therefore it has to be assumed that the index is still in a "downtrend", as far as that weekly MA is concerned.

The DOW has been enjoying unyielding momentum to the upside, due the continued positive economic and earnings reports that have fueled the bulls to buy and the bears to hibernate. Such momentum is very difficult to stop and generally requires some type of strong catalyst to occur in order to stop the lemming-type mentality that has started to be infused into the market recently. Such a catalyst might have occurred this past week (see below).

On a weekly closing basis, resistance is strong at the 200-week MA, currently at 11120. Above that level you have to go back to 1999/2001 to find decent resistance at 11210/11221, strong resistance at 11301, and major resistance is at 10523. On a daily closing basis, resistance is minor to decent at Thursday's close at 11145. On a weekly closing basis, support is minor to decent at 10325/10329 and strong at 10012. On a daily closing basis, support is minor at 10898 and again between 10836 and 10857. Below that level there is no support until decent support is found at 10380/10397. Below that level, resistance is decent at 10282 from a previous low close as well as from the 100-day MA.

The DOW has reached a major level of resistance in the form of the 200-week MA but with continued positive earnings and economic reports, as well as strong momentum, there has been a strong risk that technical factors will not stop the buying, thus creating a break of the line and establishing the index to be in a major bull market. This is exactly what happened in 2003 when the index reached the 200-week MA, in a down-trending arch, and broke through (only time in 20 years the line was broken when in a down-trending arch).

The break of the line in 2003 caused the index to rally an additional 1000 points (10%) before any correction of consequence occurred. Nonetheless, after accomplishing the break of the 200-week MA and rally, the correction only took the index back down to test the 200-week MA. After that line was successfully tested the index then generated a 4-year bull-market rally that took the index from the corrective low at 9708 to the all-time high at 11498.

This is exactly what the DOW is facing right now with the 200-week MA. The line is in a down-trending arch and therefore must be considered major resistance. Nonetheless, a break of the line will cause strong technical buying to occur, causing a chain reaction that could thrust the index up another 1000 points or more before a profit taking correction would occur. This is why what happens here is so important.

There are several factors to consider at this time, both fundamentally and technically. First of all, what happened in 2003 began from a much higher level with the DOW low at 7468 and the break of the 200-week MA occurring at 9725 (a rally of only 2257 points). On this occasion the rally started at 6470 and the 200-week MA is currently at 11120 (a rally of 4650 points). The difference between a rally of 2257 and 4650 points means that a lot more energy has been spent to get the index up to the line, contrary to what happened in 2003. This fact alone increases the chances of the line holding this time around, versus what happened back then. In addition, the fundamental picture was much rosier in 2003 than it is at this time, with unemployment topping out at 6.3% in 2003 and unemployment now at 9.7%, just to mention one of many fundamental differences that were advantageous to the rally of 2003.

Nonetheless, that still leaves the momentum factor unaddressed and that certainly has started to become a major concern to the bears as it is difficult to stop a runaway freight train. It is possible, though, the momentum factor was addressed on Friday with the news that Goldman Sachs is being charged with Fraud by the SEC.

Certainly the one difference between the 2001 recession and the 2008 recession has been the banking industry and the confidence that Main Street has had on Wall Street. With the Goldman Sachs lawsuit, that confidence, which was strong in 2003 and not so strong in 2009, will likely be eroded even more and that could be enough of a catalyst to stop the momentum and allow the technical factors to start working. Bank stocks, in general, all had a strong down day on Friday.

After the Goldman Sachs news came out, the DOW generated a strong down day that came perilously close to generating a red weekly close and a signal that a chart top had been found. That did not occur, but the index did have a spike down day and a close near the lows of the day. In addition, the reasons for the drop (GS and the banking industry) are not likely to disappear overnight and will likely continue to affect the market for the short-term, if not the long-term as well. As such, the probabilities have now strongly increased that a negative catalyst of consequence has been found and that the DOW has found a top. Nonetheless, that won't be known until this coming week when the traders have been able to further study and analyze the repercussions of the Goldman Sachs lawsuit.

If a top has been found, a strong profit-taking binge will likely occur, especially when considering that the index has rallied 4650 points from the lows. As such, this week could have high volatility and wide swings in price. The 10816/10844 level is likely to be the key support for the traders. A break of that level will likely take the index down to 9700 (455 from the high) and give strong chart reasons to think that a top has been found and that new highs will be very difficult, if not impossible, to accomplish.

By the way, keep in mind the Elliot Wave Theory calls for a major top to be made by the first week of May, and we are now within a two week time frame of that. This coming week is likely to be the most important week since the major low was made in March 2009.

NASDAQ Friday closing price - 2481

The NASDAQ reached a major level of resistance at 2500 this past week. The 2500 level was a major pivot point between 2007 and 2008 with 2 major highs and one major low during that period of time. Due to the GS announcement, the index was unable to hold itself above that level, but did accomplish closing above a decent to strong weekly close resistance at 2454. Such an accomplishment, if confirmed this coming week with another close above 2454, will put the index into a very favorable light.

The NASDAQ did close right in the middle of the week's trading range, thus leaving the door open to both directions this coming week, based on how the Goldman Sachs news is ultimately interpreted to affect the market.

On a weekly closing basis, strong resistance is found between 2503 and 2529. Above that level, there is no resistance until the 2700 level is reached. On a daily closing basis, strong resistance is found between 2503 and 2529, exactly like with the weekly chart. On a weekly closing basis, support is minor at 2326 and again at 2290. Strong support is found at 2239 and a bit stronger at 2210 (200-week MA). Below that level strong support is found at 2141. On a daily closing basis, support is minor at 2431, decent at 2397/2398, and minor again at 2374 and at 2362. Below that there is no support until minor support is found between 2282 and 2288 and minor again at the 50-day MA, currently at 2270.

The NASDAQ continues to be the index where the bulls have been concentrating their buying. Nonetheless, having reached the 2500 level this past week, that scenario could change dramatically as it is also likely where the selling will be the strongest if the market has found its top.

The NASDAQ was able to close above an important 2008 weekly close resistance at 2454. The 2454 high weekly close was the successful retest of the 2529 high weekly close seen after the first bounce up from the start of the recessionary period. Such successful retests are supposed to be resistances of consequence that can be used as measuring sticks for the current strength. As such, by closing above 2454 on Friday it can be said that the probabilities have increased strongly that the index is heading higher. Of course, such a break of resistance needs to be confirmed with a second close above that level and that will make this coming week very important, especially since a fundamental catalyst of consequence was introduced on Friday (the Goldman Sachs news).

The resistance at 2500 is strong as in 2007 the index generated 2 major weekly high closes at 2503 and at 2515 and in 2008 the same thing occurred at 2523 and at 2529. In addition, at the end of 2007 and in the middle of those high closes, the NASDAQ generated a major low close at 2507. As such, the 2500 level has to be considered a MAJOR pivot point. Having closed at 2481 this past week, and after 10 weeks of higher-than-the-previous-week closes, it is evident that "any" red close next week would be seen as an important signal that the stock has finished its run to the upside.

Having closed right in the middle of the week's trading does means that if the NASDAQ in unable to generate any kind of rally this coming week, this past week's high will be seen as a spike. Spikes are usually a sign of a "major" top and therefore the trading range this week will be important. Evidently if the index goes back up to 2500 the spike will lose some of its strength and bullish thoughts prior to the Goldman Sachs announcement will come back. Such a scenario would bring back the bullish momentum and the index would be at risk of further upside of consequence, especially if the index is able to close, on a weekly closing basis, above 2529. By the same token, if the index is unable to generate any kind of intra-week rally up to 2500 and breaks below last week's low at 2445, it will be a strong sign that a major top has been found.

The NASDAQ did generate a down spike on Friday and a close in the bottom half of the day's trading range. The nearest support (minor) is down at 2414 and that likely means that any follow through to the downside on Monday (below Friday's low at 2468) will likely set the wheels in motion for the index to get below last week's low of 2445. Such a scenario would give a bearish signal.

It is evident that much is reliant on the weekend evaluation by the traders of what the Goldman Sachs announcement means. If the indexes come in slightly higher, unchanged, or lower on Monday, the probabilities will be high that the evaluation is negative. A substantially higher opening (near or at 2500) will likely mean that the news was a one day flash negative that is forgotten as soon as it was mentioned. As such, it is likely that whatever the index does on Monday, will impact the rest of the week. Keep in mind that the closest support of any consequence is 2387, and that support must be considered minor as it is from 2007. It is therefore likely that if the index starts going below Friday's low at 2465, it could set off a chain reaction that could take the index down 100 points this coming week.

SPX Friday closing price - 1192

The SPX was the only index that closed lower than the previous week. Unfortunately it was only by 2 points and therefore not substantial enough to give a chart signal that a top has been found. By the same token, this is the index that is most likely to give a clear signal of a top, especially since the index is heavily weighted with financial stocks and the Goldman Sachs situation is likely to affect that industry the most.

The SPX fell short of reaching the 200-week MA as that line is presently at 1225 and the high for the week was 1214. Nonetheless, it was evident that selling was coming into the index prior to GS's announcement as the index was having a lot of problems getting above a minor to decent resistance at 1213. Such action has to be attributed more to chart factors than anything else, and could be a sign that the indexes were finding a top, without the catalytic effect of the news on Friday.

On a weekly closing basis, resistance is minor at 1200, and decent at 1225. On a daily closing basis, there is minor resistance at 1213 and stronger at 1255. On a weekly closing basis, support is minor at the previous high weekly close at 1145 and then nothing until strong support at the previous weekly low close at 1066. Below that level support is decent at the 100-week MA, currently at 1038. On a daily closing basis, minor support is found at 1189, at 1169, at 1166, and at 1160. Below that, support is non-existent until the 50 and 100-day MA are reached between 1125 and 1130.

It must be mentioned that prior to the Goldman Sachs news both the DOW and the NASDAQ were moving higher without much resistance, but that the SPX was starting to see good chart selling coming in as the index was unable to get up to 1225 even though the DOW did get up an above its 200-week MA. Such action seems to suggest, even in a stronger manner than the action seen on Friday by the released news, that a top to this massive rally has been found.

The SPX is showing a possible spike type high having closed on Friday in the lower half of the week's trading range. A drop below last week's low at 1187 (only 5 points lower than Friday's close) will be a signal that further downside is to be expected. With no support built on the way up, only the previous high at 1150 can be considered any kind of support, and even so previous highs are never great supports unless the index/stock is moving substantially higher. This scenario likely means that a break below 1187 could actually generate a chain reaction that would take the index down to the nearest previous low support of decent strength at 1089.

The SPX is likely to be the index to watch this week, especially since Friday's news directly affects this index more so than the others. Confirmation that the Goldman Sachs problem is serious will be directly reflected in the index on Monday by the simple action of whether the index gets below last week's low at 1187 or not. As such, whatever the SPX shows on Monday, will likely be the direction of the market for the week.

There is a train of thought that the Goldman Sachs news was released specifically this past week as a small catalyst to stop the bullish fever that was starting to permeate the market and that could cause a bubble to be built. It is evident the Fed does not want to do anything that will bring in thoughts of a double dip recession, such as raising interest rates at this time would do. By the same token, after such a major 1-year rally surpassing any previous rallies in the past, continuation to the upside could prove to be unhealthy and dangerous to the long term recovery as well. As such, the announcement made on Friday could be a calculated action tailored to put a brake on the rally but not create a major reversal.

The action this coming week will be very important as it will determine, without much of a doubt, what the indexes will likely do for the next 3 months at least. It is evident that "more" positive news than what has already been coming out is not likely to be a "catalyst" for further upside of consequence if the momentum is stopped. Momentum right now is the biggest problem affecting the market as it fuels emotions and not normal two-way trading. All of that will likely be decided by the action this week.

This coming week there aren't any major economic reports due out. GDP and Unemployment will be the next economic reports of consequence to be seen and they are not due out for another 2-3 weeks. As such, action will likely be centered on the Goldman Sachs news as well as the banking industry. There are a lot of earnings reports due out this week (including GS on Tuesday), but it is likely that whatever happens on Monday will color the rest of the week.