DOW Friday close at 10618

The DOW started the year strong with a rally in the first week of the year and generating new 15-month daily and weekly closing highs on Friday. With the close on of the week being on the highs of the week further upside is expected. With no resistance of consequence until 11754 is reached, the index is likely to be heading higher this coming week.

Generally speaking, whatever the DOW does the first week of the year gets forwarded for another few weeks thereafter. Nonetheless, the earnings reports for the last quarter of the year will start coming out this week and that could have an effect on the direction of the indexes.

On a weekly closing basis, there is no resistance whatsoever until 10754. That resistance can only be considered decent at best as it is from 2004. Above that level there is no resistance until the 200-week MA, currently at 11180, is reached. On a daily closing basis, there is no recent resistance but minor resistance from September and October 2008 is found up at 10883 and at 11168 respectively. On a weekly closing basis, minor support is found at the most recent low weekly 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 support at 10428 and then decent to strong 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 evident that at this time, and until some negative news of consequence comes out, that the traders are scared to sell. Everyone, even the bulls, are expecting a correction of as much as 10% to occur at some point, nonetheless until some catalyst comes out no one is stepping up to be a seller. As such further upside, though labored and minimal, is likely to continue.

Nonetheless, going back to the last recession in 2001/2002, and the subsequent bull market that started in 2003, parameters are available that offer a price and time objective for the end of this bull-run. In 2003, the DOW started its rally on March 3rd 2003 from a low of 7417. The first bull-run ended the week of February 16th 2004 (50 weeks later) at a high of 10754. The beginning of this bull-run was at 6517 on March 9th 2008 and the index has now been going up for 45 weeks and has reached 10,619. In addition, the building of the top in the DOW in 2004 was very similar to the recent action seen over the past 8 weeks with new but labored and minimal highs being made week after week. In 2004, the Jan 12 high was 10601 and this year the high made on Jan 10 was 10619. On both of these occasions the DOW went up the first week in January only slightly above the highs made the last week of the previous year (in 2003/2004 it was 74 points and in 2009/2010 it was 39 points).

The scenario in 2003/2004 is very similar to what has happened this past year. It was not until the bulk of the earnings reports in 2004 came out that the index finally went into a 6-month correction taking the index down a total of 10% in value (back down to 9708). Keep in mind that in 2004 the index was in a bull market, both chart-wise and fundamentally. The chart action this past year does put the index into a bull market scenario, but the fundamentals are still very iffy at this time. Unlike 2004, there are still many questions about the recovery that will need to be answered over the next 6 months. Either way, the probabilities of a correction starting sometime in the next 4-5 weeks is high. In addition, like in 2004, the upside action will likely continue to be labored and minimal, as has been the case during the last 2 months.

In 2004, the DOW continued to make new highs the two weeks following the first week of January. Nonetheless, the new highs each week were only about 40-60 points at most (10665 and 10705 respectively). As such, it is expected the index will be higher this coming week but not by much. Support at this time will be decent to strong at 10500.

Possible trading range for this week will be 10500 to 10665.

NASDAQ Friday Close at 2317

The NASDAQ continued its upward climb after breaking above the 200-week MA 4 weeks ago, making new 15-month daily and weekly closing highs like the other indexes did. Nonetheless, the index is nearing some decent to strong resistance levels from the past between 2340 and 2376, as well as a more recent minor intra-day resistance from 15-months ago at 2318.

The NASDAQ was the strongest of the indexes on Friday as the stock never saw red during the day and ended up with the biggest percentage gain of all. In addition, it was the only index that showed a spike type high made, thus suggesting that some strong follow through will be seen this coming week.

On a weekly closing basis, resistance is decent to strong at 2343 from a major high made in 2006. Above that level there is no resistance until strong resistance is reached up at 2414. On a daily closing basis, resistance is minor at 2331, decent at 2360 and decent to strong at 2371. 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 2300 and a bit stronger at 2269. Below that level there is decent support at 2180 and 2173. Support is again minor at 2146 and decent at 2138.

Like the other indexes, the NASDAQ also started its strong up-trend after the 2001/2002 recession on March 3rd 2003 from a low of 1253. That rally ended the week of January 26th at 2154. Though the stock has gotten substantially above its 2004 high, the timing for a correction is about the same. In addition, on a weekly closing basis and from 2006, the stock does have some strong resistance up at 2343. With the index getting close to that level and the timing being somewhat the same, it is possible that within the next 2 weeks the index will start to turn down. In 2004, the NASDAQ was the first index to head lower, with the other 2 following within the next 2-4 weeks.

It is important to note that the 2376/2382 level has been a major pivot point during the last 9 years. On 4 different occasions during that period of time (2001, 2006, and twice in 2007) there were 2 major highs and 2 major lows at that price, or within 40 points of that price. With the index having rallied 2152 points so far without a strong correction, the probabilities heavily favor the index failing at that price.

It is also important to note that during those 108 months only 15 of them did the index trade above that level. That means that 86% of the last 9 years the index has traded below 2376. That takes into consideration several years the index was in an established bull market. That figure has to be considered highly indicative.

It is likely that for the next couple of weeks the NASDAQ will move higher with the 2376 level as an objective (2343 on a weekly closing basis). Nonetheless, it is also likely the NASDAQ will be the first to go south, the same way it happened back in 2004. The week of January 26th 2004 was the date the index topped out then.

Probable trading range for the week is 2300-2343.

S&Poors 500 Friday close at 1144

The SPX also generated new 15-month daily and weekly closing highs on Friday. Closing on the highs of the week, it is expected that the index will see further upside this coming week. Nonetheless, the index did start getting into areas of resistance from 2004 between 1142 and 1160 that are going to be very difficult to break.

The SPX easily got above last week's high at 1130 and confirmed that the 50% retracement resistance at 1122, based on a weekly closing basis, has been invalidated. The index remains strong but financial stocks are not considered to be one of the strong industries this year. As such, further upside is also likely to be labored and difficult to accomplish.

On a weekly closing basis, there is strong resistance at 1157 and then again at 1173. On a daily closing basis, there are no recent levels of resistance, other than the minor resistance from September of last year at 1166. On a weekly closing basis, support is minor at the most recent low close at 1115 and again 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 did break out of a coil formation 2 weeks ago that offered at 1157 objective. In addition, the index shows intra-day resistances of consequence (from 2006) starting at 1142, 1146, 1151, and at 1163. Going back to January 2002, strong resistance is found between 1174 and 1177. As such, it is highly unlikely the index has a lot more to go to the upside.

It must be mentioned that in February 2004, the SPX topped out at 1163 from the major rally that started on March 3rd 2003 at 811, and in 2002 the stock topped out in January at 1177, after a rally that started in September at 944. It is evident that some strong rallies from the past have resulted in corrections starting somewhere in the first 2 months of the year. With this being the strongest rally seen in the last 70 years, it is likely that the resistance levels mentioned above could put a strong stop to any further upside.

It is probable, though, that some further upside will be seen with 1157, 1163, or 1177 being the objective. Having closed at 1144 on Friday means the further upside will likely be limited to somewhere between 13 and 33 points. Support is now decent down at 1115 and strong at the bottom of the coil between 1089 and 1091.

Probable trading range for this coming week is 1130 to 1157.

History has shown that what happens the first week of the year generally sees follow through for the next 2-6 weeks. As such, it is likely that further upside will be seen. Nonetheless, in looking at the past recession, the upside to be seen will likely be limited and strongly labored.

The earnings report quarter starts in earnest next week with AA reporting Monday afternoon. For the next 2-4 weeks the market will likely be dependent on what the earnings reports show. Nonetheless, so much good news is already factored into the market that even more good news is not likely to generate much more upside. During the past 8 weeks it has been more the factor that the sellers have been scared to sell than buyers buying. As such, the market is set up for negative news being much more effective in generating a drop in price than positive news generating a further rally.

Everyone, including the bulls, is expecting a correction of consequence to occur soon. What seems to the question in everyone's mind is when and with what catalyst. That is not clear at this time.