DOW Friday close at 10012

The DOW, in spite of more good news from the unemployment front, fell down to and below the 10,000 psychological support level on Friday, The drop was partially due to a failure to follow through on Wednesday when the index got above the recent resistance at 10285. Nonetheless, the mini breakout did not bring in any additional buying and the traders promptly sold the index down when the disappointment became palpable.

It is now clearly evident the DOW is in a corrective phase having dropped 895 points over the past week. Nonetheless, this is probably not a one step correction but a full-blown correction phase that will take several months to play out. As such, the probabilities favor several peaks and valleys along the way, covering a period of about 6 months and generating at least a full 10% correction from the recent highs.

On a weekly closing basis, resistance is minor at 10472 and again at 10520. Strong to major resistance is now at 10618. On a daily closing basis, there is minor resistance at 10236 and decent resistance at 10297. Above that level there is decent to strong resistance between 10453 and 10472, and decent resistance at 10520. Above that level, resistance is major at 10711/10725. On a weekly closing basis, decent psychological support is found at 10,000 (9970-10030). Below that, the 100-week MA, currently at 9840, would be seen as decent to strong support. Actual previous low support is not found until minor to decent support is seen at 9713. On a daily closing basis, other than the psychological support at 10,000, there is no previous support until minor to decent support at 9713 is reached. Below that level there is nothing until decent to strong support is again found at 9488, from a previous close of consequence as well as from the 200-day MA.

The DOW seems to mimicking the corrective pattern seen in 2004 after the recession in 2001/2002. In 2004, the corrective pattern included 4 peaks and valleys over a period of 6 months taking the index down a total of 10%. The first valley has likely been seen with this week's drop down to 9835. On Friday, once the low was reached, the index saw buying coming in and finished the day 177 points from the low and with a green close. Such action will likely generate renewed interest in buying dips, especially since there has been no negative news of consequence during this first corrective phase down.

If the index continues to mimic 2004, it is expected that over the next two weeks a fast rally back up to at least the 10500 level will be seen. The recent news has actually been overall positive and from a fundamental point of view this recent drop was a surprise. Nonetheless, after a move from the low seen in Mar09 of 4260 points, it was evident that even the bulls welcomed a corrective phase where the market could technically build a support base from which renewed buying could be made with some risk limitation.

It must be mentioned that the 10,000 level in the DOW has to be considered one of those very strong psychological supports and it is unlikely such a level will get broken without some negative news or a strong momentum push. Having responded well on Friday when the index dropped to 9835, it is likely the momentum down has been truncated. With no negative news of consequence, it does not seem likely that the bears will be able to continue to push down from these levels, and therefore a rally can occur.

Back in November and December, the DOW spent a total of 6 weeks trading up to and around the 10500 level. That level is likely to be a magnet to the traders, as well as strong resistance, if the stock does get itself into a peak-rallying scenario. In 2004, after a high of 10754 was made that was followed up with a drop down to 1007, the first rally thereafter took 2 weeks and generated a high of 10571. It would not be surprising to see that scenario duplicated this time around.

With Friday's late rally and close in the 10,000 support level between 9970 to 10030, it is likely that if the rally is to occur that the same support level will be in effect on Monday (9970/10030). The first objective to the upside would be a test of the 100-day MA that the index broke below this past week. That line is presently at 10175. As such, it is possible that Monday's trading range will be something like 9970 to 10170. Such a range would be comparable to Friday's trading range of 197 points. Nonetheless, in looking at the 50 60-minute MA, it seems possible that a drop as low as 9927 could be seen Monday Morning. Either way, though, based on the late action seen on Friday, the probabilities do favor upside action on Monday and a close deep in the green.

Possible trading range for the week could be 9927 to 10428.

NASDAQ Friday Close at 2141

The NASDAQ attempted early in the week to generate a rally above the 100-day MA it broke below over a week ago as well as get above the decent resistance at 2200. The index failed to accomplish that after getting above the MA line at 2176 2 days in a row but being unable to get above 2200 with rallies up to 2194 and 2195. The failure to accomplish that feat created disappointment and the index sold off late in the week to break below a relatively important intra-week support level at 2114 on Friday. Nonetheless, when it was all done, the NASDAQ also did not follow through on that break and managed to have a reversal type day after making new 2-month lows and closing strongly in the green.

On Friday, the NASDAQ closed on the high of the day after generating a spike low type action. Such and event should generate further buying this coming week as there will be disappointment in the bear camp that the break of the 2114 intra-week low did not generate follow through.

On a weekly closing basis, resistance is now decent at the 200-week MA at 2210, minor to decent between 2250 and 2274 and major at the most recent high weekly close at 2317. On a daily closing basis, resistance is minor to decent at the 100-day MA (currently at 2178), decent at the most recent high close at 2191, and decent again at 2200/2204. Above that level there is no resistance until minor resistance is found at 2291. Major resistance is at 2317/2320. On a weekly closing basis, there is minor support at 2138 and strong support at 2045. On a daily closing basis, support is minor at 2125 and then absolutely nothing until 2045 is reached.

The NASDAQ gave several failure to follow through signals this past week, on both the buy and sell side. Nonetheless, when considering that the index has been on a 10-month up-trend, the failure to follow through to the downside was probably the most indicative of the two. Having broken below a decent intra-week support at 2114 but then managing to close out the week above a minor weekly close support at 2138 will likely be a short-term positive, especially when considering the preponderance of good fundamental news that came out this past week.

It is likely the NASDAQ will be moving back up this week with the first objective being the 100-day MA, currently at 2178. Nonetheless, if the index is able to get above that level and can close above the most recent high daily close at 2191, the index will likely be attempting to get back up to the 200-week MA, which is up at 2210. Keep in mind that the NASDAQ was the strongest index during the past 10 months and was the "only" index that got above the 200-week MA. As such, if there is some strength seen in the indexes this week, it is possible that strength will once again be concentrated in the NASDAQ. This means the possibility of the index breaking above the 200-week MA intra-week again is good. If that happens, a rally back up to the 2291 daily close resistance could be seen over the next 2 weeks. Such a rally would also serve as a successful retest of the highs.

Friday's intra-day low in the NASDAQ at 2100 should now be considered decent support. On a daily closing basis, it is also likely that Thursday's close at 2125 will be seen as decent support as well. As such, an intra-day drop down to that level could be seen on Monday. Nonetheless, if the failure to follow through to the downside seen on Friday is for real (likely), no new weakness should be seen for at least a week or two.

Possible trading range for the week is 2137 to 2266.

S&Poors 500 Friday close at 1066

The SPX had an important day on Friday having broken below the 100-week MA intra-day, currently at 1060, but then closing above the line. In addition, the index got back down intra-day to the "first" weekly corrective high at 1044 seen in Oct08 when the indexes were breaking down. By going down to 1045 on Friday, it can be said that level was tested, and probably successfully so if the index heads higher this week.

It is unlikely that on a weekly closing basis the SPX will break the 100-week MA until such a time that the recent high has been tested successfully. As such, the intra-day break of the line on Friday, followed by the close above the line, has to be considered a sign that the index is likely to go higher, rather than lower, this coming week.

On a weekly closing basis, resistance will now be major at the most recent high close at 1145 and minor at a previous weekly closing high at 1126. On a daily closing basis, resistance is decent to strong between 1091 and 1103 from the 100-day MA, currently at 1091 and the most recent high daily close at 1103. Above that level resistance is decent to strong between 1110 and 1114, decent again at 1128, and major between 1147 and 1150. On a weekly closing basis, support is decent at the 100-week MA currently at 1058, as well as at 1036 and 1025. Below that level, there is no previous support of consequence, other than the psychological support at 1000, until an important previous high, as well as 50-week MA, is reached at 970. On a daily closing basis, support is non-existent until minor support at 1043 and decent at 1036. Below that level, support is decent again at 1025 and then nothing until the 200-day MA, currently at 10014. Strong psychological support is found at 1000.

The SPX did accomplish several downside objectives such as the minor daily close support at 1043, the previous corrective high in Oct08 at 1044, and lastly the coil formation objective of 1049. Having accomplished all these objectives to the downside and having generated a strong rally from the lows on Friday to close in the green, the probabilities now favor upside movement to test the 15-month highs made at 1150.

A move up to the Nov/Dec highs up at 1119 is likely to happen, even though this week's high at 1105 will offer resistance. Nonetheless, a rally up to 1119 is not likely to be sufficient to generate a good retest of the highs, and therefore the possibility of a rally up to 1130/1134 is good. Intra-day support for Monday should be 1054/1056. Upside objective for Monday could be the 100-day MA currently at 1091.

Possible trading range for this week is 1056 to 1119.

This past week was a jumbled mix of signals on both sides of the coin. First the indexes early in the week broke above some decent recent resistance levels and then failed, and then on Friday the opposite happened breaking some decent support levels and failing to follow through as well. As such, both the high and the lows of this past week are possible targets for the traders this coming week. Nonetheless, with the indexes being in a strong 10-month up-trend and the fundamental news generally positive, the probabilities have to favor the bull side, now that a corrective drop to the first downside objectives has occurred.

It has to be mentioned that at this time the probabilities that the indexes are in the same type of corrective phase as was seen in 2004 are high. In 2004, the corrective phase lasted 6 months but included 4 drops and 3 rallies, before the bull-trend resumed. As such, the likelihood that the "first" phase of the correction is over and that the first rally from the correction is about to occur is high as well.

The economic calendar is small and weak this week with no "major" reports due out, except perhaps the Retail Sales number due out on Thursday. That report is not likely to have a strong impact on the market. As such, it is probable that technical trading will dominate the week. If that is the case, the action on Friday is likely to give the bulls enough ammunition to re-start the recent up-trend and generate a fast retest of the recent 15-month highs.