DOW Friday close at 10428

The DOW finished out the week on a sour note with a sell-off occurring on the final trading hour of the year. The index not only closed in the red for the week but also below the previous high close, prior to last week's close, at 10472. With more good news seen throughout the week, as well as Thursday's Initial Claims coming in lower than anticipated, there was little reason for the sell-off other than some end-of-the-year profit taking and book squaring.

Nonetheless, the DOW did have a reversal week with higher highs than the previous week and a red close on Thursday. A reversal week likely means the technical traders will come in as sellers on Monday, or at least until the reports due out this week give a better indication of what is to happen.

On a weekly closing basis, there is now minor to decent resistance at the previous week's close at 10520. Above that level there is no resistance until the 200-week MA, currently at 11700, is reached. On a daily closing basis, there is minor to decent resistance at 10472 and again at 10501. Decent to strong resistance is found at 10547/10549. On a weekly closing basis, minor support is found at the previous week's close at 10329. Below that level there is no support until the 100-week MA currently at 10000, is reached. At that level, there is also a previous weekly high close at 9996 that is likely to add strength to that support. On a daily closing basis, there is decent to strong support at 10310 as well as at 10286. Below that level there is minor support at 10197 and then nothing until the 50-day MA currently at 10,060.

It is close to impossible to put much meaning to the action that has been seen over the past couple of weeks, on either direction, as the volume and participation have been the lowest in many years. Nonetheless, that is now likely to change as history has shown that the first 2 weeks of the year generally generate direction as well as follow through for the 6-12 weeks thereafter.

There is minor support at 10395/10406 and then nothing of consequence until 10265 is reached. At that level the 50-day MA is also located. Resistance will be decent to strong up at 10515. It is probable that the DOW will come in lower on Monday due to the spike type low seen on Thursday, as well as the reversal type action seen. Nonetheless, this coming week is full of reports that are likely to be important to the market, starting with the ISM index on Monday at 10:00am and the unemployment and payroll numbers on Friday. Both of these reports are likely to have an impact on the market.

The ISM is an "A" type of report that will be closely monitored for manufacturing and inventory numbers. The report came in lower than anticipated last month and if that happens again, that will put a big caution note on the market and likely cause the indexes to fall until the Unemployment and Payroll numbers come out on Friday. The report is anticipated to be better than last month (55.3 vs. 53.6).

Last months Unemployment and Payroll report was surprisingly better than anticipated and the traders will be closely watching to see if last months numbers were correct or skewed. Unemployment will be a major factor this coming year as a full recovery cannot be expected to happen unless unemployment goes down. The Unemployment number is supposed to come in at 10.1% and the payroll numbers at 0k. Anything worse than expected will likely generate strong selling in the market. Due to the fact that the market is likely to pivot around these numbers this week, it is impossible as of this writing to anticipate what direction the market will take. Nonetheless, past history has shown that what happens the first week normally translates to a 4-8 week trend.

In looking at the chart of the DOW for the last 10 years, there are several factors that seem to point to a correction occurring soon. The index is trading at a 75% RSI (overbought) and the slow stochastic has started to move down. Both of these technical indicators are likely signaling a possible end to the recent inexorable up-trend. Most importantly, though, the index has shown a move of 4110 points from the low, with only a very minor correction of 780 points occurring in July. That kind of a move is the most ever seen without some kind of a decent pullback occurring. In addition, in looking back to the last recessionary period back in 2002, as well as the first bull market move thereafter in 2004, the index is reaching those levels of resistance (between 10650 and 10760) that stopped the index back then.

So the question is likely to be "what will the index do the next 4-6 weeks". Will it move higher, to then start a strong correction in February, or will the index start the correction after these reports come out? Either way, though, the probability of further upside of consequence is likely minimal. More information, though, will be available after this week is over.

NASDAQ Friday Close at 2269

The NASDAQ confirmed its break of the 200-week MA with another close above the line this past week. Nonetheless, the index was unable to go substantially higher even though no resistance of consequence is seen above, thus giving notice that the chart buying has begun to ebb. In addition, the index had a reversal week with a higher high, above last week's high, and a red close. Such action seems to suggest that a re-test of the line at 2210 is likely to occur before any further upside is seen.

The NASDAQ has accomplished more than the other indexes and that is not necessarily a strong positive as the blue chip companies should be receiving the most buying if the economy is as strong as we are being led to believe. The fact the NASDAQ is getting the bulk of the buying seems to suggest bargain hunting rather than long-term investing.

On a weekly closing basis, resistance is now minor at the previous week's close at 2286. Above that level there is no weekly close resistance until 2333 is reached. On a daily closing basis, resistance is decent at 2291, decent again at 2333 and strong at 2453. On a weekly closing basis, there is minor to decent support at 2239 and strong support at 2210/2212. Below that level minor support is found at 2138 and then nothing until strong support at 2045/2048. On a daily closing basis, support is minor at the previous daily high close at 2212 and decent at 2180 and 2173. Support is again minor at 2146 and decent at 2138.

The break above the 200-week MA has been a strong signal of strength. Nonetheless, a retest of that level is likely and necessary if the index is to continue higher. The lack of strong follow through seen this past week, as well as the red close and on the lows of the week, suggests that the NASDAQ will be heading lower this coming week, with an objective of testing the 2180/2212 area. The index shows no support whatsoever until those levels are reached and any further weakness on Monday will likely generate that retest.

The index does have some minor intra-week resistance at 2318 and some daily and weekly close resistance at 2333. If the ISM index report comes out bullish, rallies up to that level will likely happen. Nonetheless, it is unlikely that anything beyond the 2212 to 2318 levels will occur until Friday, when the unemployment and payroll numbers come out.

It must also be mentioned that in 2004, when the NASDAQ was already in a bull market scenario, the index traded above and below the 200-week MA for a period of 8 months before establishing itself above the line in a convincing way. As such, the fact the index has broken above that line does not mean that drops below the line cannot occur. Nonetheless, one thing that is probably now established is that the 2000 level where the 100-week MA is presently located will now be considered "major" support. No longer are drops down to the 1750 level likely to occur, at least as long as the index is trading in a sideways to up-trend. As such, should a correction occur, will likely be no more than about 10%.

On a shorter-term basis, it must be mentioned that the gap between 2213 and 2224 level is still open and likely to be a magnet this week if the economic reports do not generate further upside. With no support whatsoever until the 2200 level is reached, if the NASDAQ breaks below last week's low at 2269, especially if this happens after the ISM report at 10:00am on Monday, drops down to that level will be highly likely. By the same token, if the report is bullish and the index gets above last week's high at 2296, a rally up to at least 2318 will likely be seen. It is more probable, though, that if the index goes above last week's high that a rally up to the Apr06 highs at 2376 would be seen.

The NASDAQ has accomplished enough for the traders to believe that a strong move down is now unlikely. A correction of 10-12% is still within the scope of what the index can do, but further downside than that would require a fundamental return to a bear market scenario.

For this coming week, last week's trading range between 2269 and 2296 will likely be the parameters the traders will follow. Nonetheless, those parameters are only good after Monday's 10:00am economic report. After that time, any break of those two levels will likely generate follow through for the next 3-4 days, or at least until the Unemployment report comes out on Friday.

S&Poors 500 Friday close at 1115

The SPX also had a reversal week making new 14-month highs and closing in the red. Nonetheless, unlike the DOW the index was able to close above the previous high weekly close at 1106. As such, no failure to follow through signal was given or even hinted at. By the same token, having gotten up to the lower part of a strong resistance area between 1132 and 1177, it is possible the index is starting to show signs of topping out.

It is important to note that SPX has now had a weekly retracement, on a weekly closing basis, of 50% from the 1562 to 683 drop seen from the week of Oct07 to Mch09. The 50% retracement is at 1123 and last week the index closed at 1126. With the lower close this past week, it could be a sign that the index has fulfilled its upward objective and that no further upside will be seen.

On a weekly closing basis, last week's close at 1126 is now considered a minor resistance. Above that level, decent to strong resistance is found every 10 points between 1132 and 1157. Resistance is also strong at 1164 and 1173. On a daily closing basis, decent resistance is now found between 1126 and 1128. Above that level there is no recent (last 2 years) visual resistance until minor to decent resistance is reached up at 1166. On a weekly closing basis, support is minor at the most recent low close at 1102. Below that the 100-week MA, currently at 1072, must be considered decent support. Below that level there is no support of consequence until 1036 is reached. On a daily closing basis, there is decent support at the bottom of the coil formation between 1087 and 1091. Below that level there is no support until decent support at 1043/10044. Strong support is found at 1025/1036.

The SPX had a classic reversal day on Thursday with higher highs, lower lows, and a close below the previous day's low. In addition, having gone above the previous day's high but not above the 1130 high seen earlier in the week, it can also be said the index has now tested the high successfully. With the close on the lows of the day, it is expected the index will be heading lower this coming week with a possible objective of the last daily close support at 1096.

Nonetheless, with some important reports due out this week on Monday and Friday, it is difficult to evaluate the chart at this time. The chart does suggest that a drop down to the 1094 level (50-day MA) is possible, and maybe even probable. Unfortunately that won't be clear until after 10:00am on Monday when the ISM index report comes out.

It must be mentioned that the SPX has also had a rally of epic proportions but has now accomplished one of its main goals having retraced 50% from the highs seen in 2007. The fundamental picture, especially in the SPX heavy financial area, is not conducive to further upside of consequence. With no corrections of note during the past 9 months, the odds may begin to shift if the reports this coming week are not, once again, much better than anticipated.

Any daily close below 1096 or above 1128 is likely to generate further movement in that direction.

During the past 3 months the indexes have maintained their upward momentum, though on a "limited basis", because all earnings and economic reports have continued to be better than anticipated. Nonetheless, that "edge" may be coming to an end because now it really is about whether the market is growing and not so much about it being better than it has been during the last 18 months. Simply stated, it is "sink or swim time". With many important reports due out this week and this month, as well the start of the New Year and new earnings quarter, volatility and movement are likely to return to the market.

Though December was extremely slow, the indexes did reach lofty objectives as well as levels that will be difficult to maintain without continuing improvement in the economy. As such, it is likely that by the end of this coming week some decisive action will be seen across the board. The ISM index on Monday will give the market an idea of how the manufacturing industry is faring at this time. This is likely important because the holiday season should have generated an increase in production. On Friday the Unemployment and Payroll numbers will come out. This is also very important, as one of the reasons for last month's rally was the unexpectedly good numbers seen. If those numbers are not confirmed this month, the market will deflate. In addition, starting next week the earnings report season will begin showing if companies are, in effect, growing or simply reached the best levels possible within the context of a recessionary period.

It must be mentioned that past history shows that the first 2 weeks of the New Year generally generate follow through in the direction decided, for at least 4-8 weeks thereafter. What has happened over the past 9 months will need to be put aside as this is now a new game where the real numbers will decide the direction from here on in.