DOW Friday closing price - 10425

An array of positive earnings reports as well as good news regarding the status of the manufacturing industry in England and the banking industry in Europe allowed the bulls to generate an impressive rally at the end of the week that threatens the short term downtrend that has been in effect since April. The DOW was able to close on Friday above the 200-day MA as well as above the most recent high daily close at 10363. Both of these levels have been considered decent to strong resistance levels since June 23rd.

The rally in the DOW has come on the heels of a successful retest of the 100-week MA seen 4 weeks ago and suggests the possibility of once again retesting the 200-week MA, currently at 11050, if the rally is able to break the recent downtrend.

On a weekly closing basis, resistance is decent to strong at 10451. Above that level, resistance is decent at 10618 and strong at 11204. On a daily closing basis, resistance is decent to strong at 10451, decent between 10471 and 10521, and decent to strong again at 10725. Above that level, there is minor to decent resistance at 10897 and strong resistance between 11000 and 110205. On a weekly closing basis, support is minor at 10098, minor to decent at 10012 and at 9932 and decent at 9686. On a daily closing basis, support is minor to decent between 10286 and 10310, decent at 10098, minor to decent at 9816 and strong at 9686.

The DOW is showing a possible inverted Head & Shoulders formation with the left shoulder at 9758, the head at 9614, and the right shoulder at 10008. If the formation is an H&S, the neckline was broken on Friday when the index got above the 200-week MA at 10395. Objective of the H&S formation is 11050. Nonetheless, it must be mentioned that the fact the right shoulder was nowhere near the left shoulder either makes the formation more powerful, or a formation that is incomplete. At this time and without yet knowing how the index will act next week, that determination is impossible to make at this time. Nonetheless, if it is an H&S formation, further upside of consequence is likely to be seen.

It must be mentioned that since May 20th, the DOW has traded 89% of the time below the 200-day MA. There was one 5-day period of time between June 15th and June 23 that the index traded back above the line, but that excursion was short-lived and the index got back down into a negative outlook soon thereafter. As such, it is possible to say that this excursion above the 200-day MA could also be temporary in nature. Nonetheless, the high of the previous excursion was 10594 and if that level is broken this coming week, the bulls will gain a strong upper hand, the H&S formation will be confirmed, and much further upside will likely be seen. As such 10594 is now a huge key as far as deciding what is to happen.

It must be mentioned that on the 60-minute chart of the DOW, the index broke out of a flag formation on Friday that offers a 10565 objective. As such, both the daily and intra-day chart suggests that a rally this coming week up to the mid 10500's will be seen. It must also be mentioned that on the weekly chart, the index had a classic reversal week with lower lows, higher highs, and a close above the previous week's high, and that offers a very high probability that follow through to the upside will be seen this coming week.

The DOW does show decent resistance from Nov-Jan between 10517 and 10724, but it is likely that resistance area will not covet the attention of the traders because they are likely to key on more recent chart points than the ones 8-9 months ago. It is therefore also evident, that the most recent high seen in the index at 10594, is a major pivot point that if broken will unleash a rash of technical buying that will most likely find fertile ground until the 11000 level is once again reached.

From a fundamental basis, this coming week is full of important economic and earnings news. On the economic front, Durable Goods, Case Schiller 20-city Index, Consumer Confidence, GDP-Adv, Chicago PMI, and Mich Sent are due out. All of these reports are considered important fundamental indicators. On the earnings front there are over 700 companies reporting earnings this week with BP, CIT, and Visa likely leading the way as far as importance. As such, the week will once again be dominated by news, more so than technical aspects. Unfortunately, the higher array of important news is not due out until mid-week, and that likely means that Monday, and perhaps Tuesday, the DOW will likely be moving on technicals and not on news.

It is expected that the DOW will be strong on Monday and probably reach up into the mid 10500's leaving the rest of the week for the bears to prove that they can stop the rally. The burden of proof is back on the shoulders of the bears since the 200-day MA has been broken. Though 10594 is likely to be the key level intra-week all week, the 10451 level on a weekly closing basis, and the 10500 level on a daily closing basis, are likely to be almost as important.

It is unlikely, though, that until the economic reports of consequence start coming out at mid-week that anything of consequence will be decided. By the same token, based on the preponderance of positive earnings reports, the more positive outlook of the banking industry in Europe, and the high concentration of short positions in the market, the probabilities have started to shift to the bull side. On a negative note for the bulls, though, the rally seen this past week as well as Friday's breakout, was not confirmed with an increase of volume. The volume on up days continues to be low and if that doesn't change, the bulls will have a tough time generating further upside of consequence.

NASDAQ Friday closing price - 2269

The NASDAQ repeated the action seen back in the Jan/Feb when the index traded below the 200-week MA for a period of 3 weeks only to punch back again over the line on the 4th week. The index has traded for the last 3 weeks below the 200-week MA, currently at 2220, but on Friday the index was able to close above that line as well as above the 200-day MA and the most recent and important high daily close at 2250. Such action suggests strong follow through will be seen this coming week.

In addition, the NASDAQ also had a classic reversal week with lower lows, higher highs and a close above the previous weeks high. With no evident resistance of consequence being seen on the chart until the 2326/2341 level is reached, the probabilities of the index moving up an additional 50 to 70 points this coming week is high.

On a weekly closing basis, decent to strong resistance is found between 2310 and 2317. Above that level, resistance is minor at 2347, decent at 2453, and major at 2530. On a daily closing basis, there is minor resistance at 2278, decent to strong resistance at 2303/2310, and again at 2320. Above that level there is no resistance until minor to decent resistance is found at 2425. On a weekly closing basis, support is minor at 2179, decent to strong at 2141 and strong at 2092. On a daily closing basis, support is minor at 2222 and decent to strong between 2179 and 2196. Below that level, there is minor to decent support at 2159 and strong support at 20.92.

The NASDAQ also shows a possible inverted Head & Shoulders formation with the left shoulder at 2139, the head at 2061 and the right shoulder at 2160. The neckline was broken on Friday when the index closed above the 200-day MA, currently at 2260. The objective of the H&S formation is 2360 (90 points higher). Nonetheless, it must be mentioned that even though the inverted H&S formation is clearly evident on the daily chart, no such formation exists on the weekly chart. Such a disparity would tend to detract from the validity and/or strength of the formation.

On an intra-week basis, the NASDAQ shows little resistance of consequence whatsoever until the 100-day MA, currently at 2325 is reached. Nonetheless, there is a minor previous high at 2307 that could act as an obstacle. As such, the possibility of the stock seeing a rally of anywhere from 38 to as much as 56 points on Monday is high. By the same token, if the index fails to follow through on Monday and closes below the 200-day MA, currently at 2260, Friday's strength will disappear and the selling pressure will resume.

Due to the classic reversal seen this past week, the probabilities favor further upside. In looking at the weekly chart, resistance intra-week will be strong at 2322/2326, which means an additional rally in the index of about 2.5% would occur. Like with the other 2 indexes, the 60-minute chart shows a flag formation that was broken to the upside on Friday with an objective of 2314. By the same token, if the top of the flag at 2250 is broken to the downside on Monday, it will mean the breakout was bogus, and the selling would likely come back. As such, if the index is heading higher, it should not be down more than 19 points at any time on Monday.

SPX Friday closing price - 1102

The SPX is likely to be the key to the indexes this coming week as it has continued to under perform the other indexes to the upside. As such, the index has kept itself at or below important resistance levels that will likely determine the validity of Friday's breakout compared to what the DOW and the NASDAQ were able to accomplish.

It must also be noted that many of the big financial companies in the SPX have already reported earnings, in addition to the fact that the European banking news released on Friday should have also been strongly supporting to the financial stocks. And yet, the index failed to be the leader to the upside on Friday. That fact should create a caution flag to be raised in the minds of the traders on Monday.

On a weekly closing basis, resistance is decent to strong at 1118, decent to strong again at 1145, and major at 1217. On a daily closing basis, resistance is decent to strong at 1103 and a bit stronger at 1118. Above that level, resistance is minor to decent at the 100-day MA, currently at 1129, and decent to strong at 1150. On a weekly closing basis, decent (perhaps even decent to strong) support is found at 1065/1066 and strong support at 1023. Below that level there is decent support at 1014 (100-week MA) and decent to strong at 1000 (psychological support). On a daily closing basis, support is decent to strong between 1065 and 1070, decent at 1050 and strong at 1023.

The SPX, like with the other indexes, also shows a possible inverted Head & Shoulders formation with the neckline at 1096 having been broken on Friday. Nonetheless, the index also shows a previous decent to strong daily close resistance level at 1103 that was not broken, contrary to what the other indexes did. As such, the break above the neckline faces stiff resistance on Monday from that resistance level, forcing the index to close in the green by at least 3 points or face failure to follow through selling that would appear if the index closes in the red.

Most of the positive news this past week, both in earnings and economic, had to be considered more beneficial to the SPX than to the other indexes, and yet the index did not show that to be the case. As such, the SPX is the one index that is likely to provide a clearer picture this coming week as to validity of the rally than what the other indexes will provide. Any red close on Monday would be seen as a negative. In addition, any intra-day move below the top of the flag formation at 1097 would also tend to negate the flag formation breakout on the 60-minute chart, likely bringing in new selling by the traders.

It must also be mentioned that contrary to the other indexes, the SPX was not able to even get up to the 200-day MA, currently at 1113, much less close above it. As such, the index must be considered as the absolute barometer, as well as the potential "brake", to what the other indexes are showing is likely to happen.

Once again the indexes are showing a bit of discrepancy among themselves as far as the potential strength and direction of the rally from this point forward. Both the DOW and the NASDAQ are suggesting quite a bit of strength to be seen this coming week, but the SPX seems to suggest that may be "jumping the gun". Based on where the indexes closed on Friday, though, it is likely that as early as Monday some determination will be seen.

By the same token, this coming week is full of economic and earnings reports that are likely to have a fundamental impact on the market, so the technical/chart aspect of the market is likely to take a back seat to all of that. On the other side of the coin, the indexes are at levels that if broken and/or confirmed "automatic" buying from computers is likely to be seen, so it is a week that both the bulls and the bears will be walking gingerly.

With economic reports of consequence, such as Durable Goods, Consumer Confidence, and GDP-Adv coming out this week, it is likely the indexes will trade within chart parameters that don't confirm any clear direction for the first couple of days. Nonetheless, there are enough reports due out this week to cause the "dam" to open and flood the market with buying or selling of consequence. It must be mentioned that the last "flood" of volume occurred about a week ago and it was to the downside. Rallies have shown a dearth of volume buying. As such, probabilities continue to favor the downside, but by a very small percentage.