DOW Friday close at 10609

The DOW continued its upward climb early in the week but was unable to hold on to its gains. The index had the second reversal week in the last 3 weeks making new 15-month highs but closing out the week in the red. Such action seems to suggest that even with continued positive news, as was seen this past week, the momentum to the upside is waning.

The DOW did get close to the high seen in the week of February 16th 2004 at 10754 with a rally this past week to 10726. The high in 2004 came after a 10-month rally from the 2001-2002 recession. That high signaled a 6-month correction that took the index down 10% to 9704. The time frame, price, as well as recent action between 2004 and now, are very similar and likely to be repeated.

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 minor to decent resistance at Thursday's high at 10711. Above that level there is minor resistance from September and October 2008 at 10883 and at 11168 respectively. On a weekly closing basis, minor support is found at the most recent low weekly close at 10428 and then again 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.

The market received positive earnings reports from JPM and INTC this past week but those reports were unable to generate any new buying interest. On Friday, the DOW had a spike down based on the disappointment at the inability of the market to rally, closing below the most recent low daily close at 10627, and in the process generating a short-term (1-3 days) sell signal.

With the red weekly close on Friday, as well as the close near the lows of the week, it is likely the DOW will be lower on Monday. Support is found at the 50-day MA, currently at 10415. The 50-day MA has been a very strong support line since it was first broken to the upside on July 15th. Support is also strong between 10423 and 10431 from the most recent important lows seen the last week of 2009 and the first week of 2010. It is unlikely that level will get broken this week unless some of the earnings and economic reports come out negative. Nonetheless, should a drop down to that level occur, even if it is supported, it will cause further disappointment in the bull's camp.

It is possible the index could ultimately make a new high over the next couple weeks, above the 10726 high seen this past week, as the topping out process back in 2004 also took several weeks of inching higher before it was completed. Nonetheless, the DOW is ready to correct now and the catalyst that could cause the correction to occur could unexpectedly come out at any moment. As such, vigilance for support levels is required.

At this moment, the previous week's low at 10431 seems to be a short-term key support. A break below that level would generate further downside taking the index down to at least 10264, but possibly all the way down to the psychological support at 10,000. To the upside, the 10754 level is important, as a break of that level would likely negate the comparisons to the rally in 2004.

Overall, though, the DOW seems to be tired and not likely to be able to generate much further upside, even if the reports continue to come in better than expected.

NASDAQ Friday Close at 2288

The NASDAQ had a key reversal week with 16-month highs, lower lows, and a close below the previous week's close. This was the first key reversal to the downside since the week of May 19th 2008, and very likely indicates that no further new highs will be made for awhile. In addition, the index not only had a key reversal but negated "all" the gains seen this year by also going below and closing below the weekly low and close made the week of December 28th.

The NASDAQ was the first index to signal a top back in 2004 leading all the other indexes down in the second week of Jan04. It has to be considered indicative that the action seen this week was also in the second week of 2010.

On a weekly closing basis, resistance is decent at the most recent weekly high close at 2317. Nonetheless, decent to strong resistance is found 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 strong at 2317 from a double top generated over the past 2 weeks. Above that level there is minor resistance at 2331, decent at 2360 and decent to strong at 2371. On a weekly closing basis, there is 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 2282 and at 2269. Below that level there is decent support at 2210 from the 50-day MA.

By breaking and closing below the low of the last 2 weeks, the NASDAQ has given a strong signal that a top to this rally has likely been found. In addition, the index has now built a very strong double top on the daily closing chart at 2317 that looms ominous due to the strong selling that was seen this week. Nonetheless, none of the recent daily close support levels at 2276 and 2269 (2273 and 2269 intra-day) was broken and until that happens no sell signal will be given. If those lows are not broken early this week, the possibilities of testing the double top with a rally up to 2314 will be high.

By the same token, if those lows are broken, there is absolutely no support of consequence until 2210/2212 is reached. In addition, the NASDAQ still has an open gap between 2220 and 2224 that will become a magnet once the index gets below 2269.

As far as the NASDAQ is concerned, the key this week will be the support at 2269/2273. A break of those levels will bring strong selling pressure. Nonetheless, if the index is able to hold above last week's low at 2273 (show no follow through), the index will likely go back up to 2314 and generate an inside week. That exact thing happened in May08 with the last key reversal to the downside seen. On that occasion, though, that key reversal was still a signal that a temporary top had been found as 2 weeks later the high was tested successfully and a 6-week downtrend began that took the index down 8%. Due to this small fact, the NASDAQ will likely be the index to watch closely for clues for this particular week.

S&Poors 500 Friday close at 1136

The SPX generated a reversal this week with new 15-month highs and a red close. Nonetheless, the index did not show the kind of weakness seen in the NASDAQ and therefore no strong inference of a possible top having been established was given.

It is important to note that in 2004, when the correction began from the 2003 rally, the SPX was the "last" index to find its top. In fact, the index was still making new highs 2-4 weeks after the other indexes had found theirs. With most of the financial services earnings reports due out this coming week, it is possible the SPX could rally and make new highs without the other indexes doing the same.

On a weekly closing basis, there is minor resistance at last week's closing high at 1144. Above that level there strong resistance at 1157 and then again at 1173, from closes in 2004 and 2001 respectively. On a daily closing basis, there is minor to decent resistance at 1147/1148. Above that level there is no resistance until 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 minor to decent support at the most recent low close at 1136. Below that there is no support until 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 has run into some solid selling up at the 1150 level the last 2 weeks. Nonetheless, the index will be dependent on what the earnings reports in the financials say this week. If they are positive, a new 15-month high could be made. Nonetheless, the resistance up at 1163 (1157 on a weekly closing basis) should stop further upside. By the same token, if the reports do not generate any new buying, the high at 1150 could easily be the high of the move.

The SPX has minor to decent support at 1131/1132, then a bit stronger at the 50-day MA currently at 1114, and lastly, strong at the 100-day MA at 1082. The key levels this coming week are 1150 and 1131. A break above or below those levels will likely generate a 15-17 point move in that direction.

The indexes all gave signals that further upside will be difficult to accomplish as the positive earnings reports that came out this week were unable to generate new highs. The volume spiked up on Friday when the indexes had a strong down day. Having closed near their lows, the volume increase has to be attributed to new selling and not new buying.

In addition, the VIX got down to a strong support between $16 and $17 that has been very important during the last 10 years. The index got down to 16.96, rallied, and then re-tested the low successfully. As such, if there are no major earnings and economic report surprises, it is possible that the index will be giving a buy signal this coming week (sell for the indexes). In the past, reaching that strong support area has generated a rally even when the indexes were in a bull market. As such, that is one additional signal that perhaps the highs in the indexes have been seen.

Only earnings reports of consequence (mostly in the financials) will be seen before Thursday. As such, it is unlikely that unless "all" reports are positive and above expected numbers that any one report could generate strong buying in the indexes. With the indexes seeing a spike down day on Friday, as well as an increase in Volume, the probability favors sideways to down action this coming week.