DOW Friday closing price - 10451

This past week the bulls were able to accomplish negating the break of the 200-day MA in the DOW with a close above the line on Tuesday, followed by 3 closes in a row above the line the rest of the week. Nonetheless, after the initial break, the index was unable to generate much further upside closing no higher than 50 points above Tuesday's close the rest of the week. As such, it is difficult to ascertain as of this writing if the negation of the break was basically linked to option expiration week or not.

On the weekly chart the trading this past week was uneventful as no level of importance on that chart was in play. Nonetheless, a double bottom at 9774/9758 was confirmed with a second close in a row above that level and that is one of the reasons the bulls continued to have an edge this week.

On a weekly closing basis, minor resistances are found at 10472 and at 10520. Decent to strong resistance is found at 10618/10620. Above that level there is no resistance until major resistance is found at 11204. On a daily closing basis, there is decent resistance between 10472 and up to 10501. Above that level, there is decent resistance again at 10545 from a previous daily high close as well as from the 100-day MA. Strong resistance is found at 10725. On a weekly closing basis, support is decent at 10012 and decent again at 9932. Below that level, there is decent support at the 100-week MA, currently at 9530. On a daily closing basis, support is minor at 10335 from the 100-day MA. Below that level there is no resistance until decent support is found at the "demilitarized zone" between 9970 and 1030, minor at 9908, and decent to strong at 9816. Below that level there are minor supports at 9713, at 9488 and again at 9218.

Having been able to close above the 200-day MA, the bulls have been able to at least stabilize the indexes for the time being and put a break to the strong negative feelings that were running rampant just 2 weeks ago. Nonetheless, the fundamental picture has not changed much, and in fact the economic news this past week generally came out worse than expected, so it would not be surprising to see selling reappear.

The DOW, though, seems to be in the process of building a Head & Shoulders formation with the left shoulder being the 10725 high seen January 19th (10620 on a weekly closing basis), the head being the 11258 high seen on Apr 26th (11109 on a weekly closing basis) and the right shoulder being whatever high is reached on this rally. The neckline is down at 9835/9758 (10012/9932 on a weekly closing basis). A break of the neckline would offer an objective of 8755. It must be mentioned that an inverted Head & Shoulders formation is what launched the 14-month rally to the highs and therefore it would not be surprising to have the same situation reversed, launching a downtrend for the next 9-12 months. The inverted H&S formation offered an objective of 10971, which was not only reached but surpassed by 130 points. As such, if the H&S formation gets built and the neckline broken, drops down to the mid 8500, or perhaps even lower, could be seen.

For the short-term though, the big question mark this week is where the right shoulder top will be. Certainly a rally up to same level as the left shoulder at 10730 is possible. The inverted H&S formation at the lows last year did show each shoulder to be evenly matched, but then again that is not a requirement for such a formation. In fact, if the right shoulder is lower than the left shoulder it usually means the break of the neckline will bring a stronger drop, which would certainly not be totally unexpected as many analysts seem to think that a drop back down to mid 7000's is what is coming.

Trying to figure out the high for this rally is going to be difficult. To start with, no further upside action is needed for the formation to be built as this rally has been enough to build the formation. Nonetheless, the probabilities do favor some further upside as the index did close on the highs of the week and the next resistance level area has not yet been reached. Intra-week resistance starts at 10496, with the level between 10496 and 10522 being designated as decent resistance. Back in November, and during a period of 5 weeks, the DOW was unable to get above 10522, though at least 10496 was seen each week. As such, that is likely to be a resistance level that could easily stop the rally.

Above the 10522 level, the 100-day MA is currently at 10540 and the 50-day MA, which was been a very consistent support line on the way up and has now shown itself to have been a good resistance line one time on the way down, is currently at 10580. As such, the probabilities of the DOW getting above this area (10496-10580) this coming week are extremely low. As far as support is concerned, back in November when the index traded up to the 10496 to 10522 level for 5 weeks, the index also traded down to 10231-10256 on 3 occasions, so that level should be considered good support.

The 200-day MA, which has been important recently, is currently down at 10335 and is likely to be considered a pivot point this week. Certainly if the level holds up, the bulls will continue to generate confidence and attempt to push higher and higher, but if the level is broken again, as it was 4 weeks ago, it will mean the bulls don't have the needed strength right now to push much higher and the line will become a pivot point between support and resistance (10231 and 10522), making the trend sideways for the coming week.

There are no "major" economic reports due out this coming week and it is possible that until the Unemployment number comes out on July 2nd that trading will continue to be uneventful. Certainly the action this week, after negating the break of the 200-day MA, was uneventful to say the least. The negation did not generate the kind of indicative buying that would lead the traders to believe the bulls will continue to generate strength. As such, the probabilities favor the index straddling the 200-day MA on both sides this week, keeping in mind that world news continues to have more of a probability of being negative than positive.

The probable trading range for the week, based on last week's trading range as well as on the support/resistance levels mentioned above, is 10522 to 10231.

NASDAQ Friday closing price - 2310

The NASDAQ was once again the leader of the indexes at the beginning of the week but once it reached the strong resistance at 2320 with the rally up to 2318 on Wednesday, the index began underperforming the DOW, failing to support the idea that any further strength would be seen this coming week. As it is, this is the index that has been leading the upside movement over the past 15 months and therefore any deviation from that leadership must be considered important.

The NASDAQ did reach a level of resistance (2320-2326) that could be very indicative. Not only was it a level that generated a drop of 226 points in January, when the index was still in a bull market, but it is also a level that served as the first bounce up in September 2008 (up to 2318) before the index dropped down to 1295 just 9 weeks later. As such, having gone up to 2321 this past week, and failing to go higher, could be a sign the recent rally may have hit a top.

On a weekly closing basis, very minor resistance is found at 2257, decent resistance is seen at 2317 and minor to decent at 2347. On a daily closing basis, there is minor resistance at 2244, minor to decent at 2278 and strong at 2303, as well as at 2320. On a weekly closing basis, support is strong at 2218 (200-week MA) and decent at 2212. Below that level, there is strong resistance again at 2141 and nothing until the strong psychological support at 2200, as well as at the 100-week MA, currently at 1970. On a daily closing basis, support is very minor at 2222, decent at 2196 and decent to strong at 2159. Below that level there is decent support at 2126 and then nothing until decent to strong support at 2048.

The NASDAQ, unlike the other 2 indexes, did reach the 100-day MA, currently at 2320, and failed to move above the line. In addition, the index may have already built a picture perfect Head & Shoulders formation with the right shoulder having reached the left shoulder height at 2326 with a Friday's rally up to 2321. Though a Head & Shoulders formation does not "require" shoulders to be even, as higher or lower shoulders are allowed, it is indicative that the shoulder might be at the same level as the 100-day MA, giving that level added resistance. It must also be mentioned that on a weekly closing basis, both shoulders could end up being very similar with the left shoulder being at 2317 and Friday's close being at 2310. If next Friday the index closes in the red, the formation will have been built.

Nonetheless, considering that the DOW could be moving higher this coming week, the possibility of the NASDAQ moving higher as well has to be considered. Certainly if the index is able to bet above the January highs at 2326, there is no previous resistance whatsoever until the 50-day MA, currently at 2355 is reached. Like with the DOW, the 50-day MA was a strong support during the 14-month rally, and already once during this recent downtrend, the line has been effective in containing a rally. As such, if the index is able to get above 2326, rallies up to 2355 would likely occur. This would measure up with the expected rally in the DOW up to 10522-10580.

By the same token, in the NASDAQ if the 200-day MA, currently at 2245, as well as last week's low at 2242, get taken out, the probability of the index getting above 2326 will drop close to nil, and the possibility of the very important 200-week MA, currently at 2218, getting broken increase. It must also be mentioned that the index is showing a "very minor" flag formation that if the bottom of the flag at 2289 gets broken, a drop down to at least the 200-day MA would likely occur. As such, the index has the clearest and nearest chart levels (2326 to the upside and 2289 to the downside) from which to make a beginning evaluation of what the index will do for the week.

The probabilities "slightly" favor the bears but only because the index has strong resistance at these levels, whereas the other indexes don't have the same kind of resistance close by. Nonetheless, it is highly unlikely the indexes in general will move in opposite directions, so it will be interesting to see which one takes the lead this week.

SPX Friday closing price - 1117

The SPX is shaping up to be the likely catalyst for the direction this coming week, either siding with the DOW to the upside or with the NASDAQ to the downside. The index finds itself at a level (1119/1121) that if broken will likely generate further upside of some consequence or if it doesn't would likely generate a failure-to-follow-though signal of some consequence. As such, the index could be the catalyst for direction this week.

The SPX is tied in closely with the biggest problem facing the market right now, which is financial stability. This is presently more of an issue in Europe than in the U.S. but nonetheless, an issue that is likely to affect the market overall, on a short-term fashion, in one direction or the other, and 1119/1121 could be the pivot point for that this week.

On a weekly closing basis, there is no resistance until minor resistance is reached at 1136. Above that level, strong resistance is found at 1145 and then nothing until major resistance at 1217. On a daily closing basis, resistance is minor at the 100-day MA, currently at 1133 and again at the 50-day MA, currently at 1140. Above that level, decent to strong resistance is found between 1147 and 1150. On a weekly closing basis, strong support is found at the double bottom at 1066/1065. Below that level, minor support is found at 1136 and decent support at 1025 from a minor weekly close as well as from the 100-week MA at 1020. On a daily closing basis, minor support is found at the 200-day MA, currently at 1109. Below that level there is no support until decent support is found at 1068/1071, minor at 1057 and strong at 1050. Below that level, decent support is found at 1025 and decent to strong support at 994.

For the last 4 days, since Tuesday, the SPX has done nothing at all having closed every day between a low of 1115 and a high of 1118. As such, it is virtually impossible to predict any kind of probability numbers for this week until Monday's action and close are seen. The index has negated the break of the 200-day MA, but that has not generated any new buying, in spite of the fact the option expiration week generally means more buying than selling. In addition, the fact the index has not been able to get above what is considered a very minor resistance at 1119/1121, has to be disappointing to the bulls. Nonetheless, as mentioned above, it is likely the SPX will be "the" catalyst this week for the indexes, inasmuch as whatever direction the index takes is likely to be supported by the other indexes as well.

On the positive side, any break above 1119/1121 is likely to generate follow through buying. By the same token any daily close below the previous double top at 1103/1104 will likely generate a lot of selling. As such, the parameters are clearly defined to a trading range of about 18 points. A break of either support or resistance is likely to bring in at least a 30 point move in that direction. Probabilities still favor the downside slightly as the fundamental scenario is not very conducive to new buying.

Like last week, there are no economic reports due out until Wednesday, and therefore technical trading is likely to dominate the first couple of days of the week. There are likely only 2 possible scenarios for the week. Based on the trading range last week of 31 points, a trading range between 1106 and 1136 could be seen, or if the 1119/1121 level holds, you could seen a trading range between 1119 and 1089.

This past week it is likely that options expiration was one of the main reasons for the strength seen. Nonetheless, that is no longer a factor this week and therefore further upside cannot be counted on to be seen. Nonetheless, the close near the highs of the week suggests that that some further upside will be seen this coming week, though that could be easily accomplished by going above the previous week's high by just a few points, thus fulfilling reaching decent to strong resistance levels in the DOW and the NASDAQ.

By the same token, the fact that the 200-day MA's in all indexes were broken this week but no strong buying was seen, suggests that at some point this coming week, the 200-day MA's will be retested at the very least, thus bringing in some decent selling just to reach down to those lines. For the same reason mentioned above, the probabilities favor the indexes "straddling" the 200-day MA's on both sides during the week, awaiting the following week's economic numbers, as well as perhaps also waiting for the beginning of the new earnings quarter that starts on July 12th.

The biggest economic report this coming week is Durable Goods and that report is not due to come out until Thursday morning. As such, most of the trading this week will be technical in nature and under those circumstances, it is unlikely the indexes will do anything major in either direction, though the risk in the market continues to be higher for the bulls than the bears because of the possibility of negative news regarding the Euro coming out at any time.