DOW Friday closing price - 10380

The DOW generated a sell signal of consequence when the index closed 629 points below the previous week's close as well as closed below the previous weekly high close made the first week of the year at 10618. The drop in price was caused by fears that the financial problems seen in Greece might soon be followed with similar problems in Spain and Portugal, causing the Euro to devalue in price and many banks to fail.

With the spike type action as well as with the close below 10618, all the gains and positives generated for the year were erased in one week, giving a strong notice that a mid to long-term top is now likely in place. The drop was further exacerbated when the index began to fall below an important overall support level at 9700 and computer sell signals were triggered, causing the index to drop over 900 points intra-day on Thursday, and bringing strong fear into the hearts of investors that such a drop could occur again. Not to be left out, the index also confirmed the successful retest of the 200-week MA, which is a major resistance level on a long-term basis, and that likely means a change of trend for at least 1-year.

On a weekly closing basis, the previous weekly closing high at 10618 will now be strong resistance. Above that level, there is no resistance until the 18-month high at 11204 is reached. On a daily closing basis, resistance is decent at 10605 (100-day MA) and strong at 10725. Above that level, there is no resistance of consequence until decent resistance is found at 11000 and then very strong at 11205. On a weekly closing basis, support is minor to decent at 10325/10329 and strong at 10012. Below that level, there is no support until the 100-week MA, currently at 9585, is reached. On a daily closing basis, support is minor to decent at 10282/10318, decent at 10195 (200-day MA), and strong at 9908.

It is evident that what happened on Thursday (drop of 900+ points) had more to do with computer generated selling than with actual price weakness. Nonetheless, severe damage was done to the chart technically, as well as to the psyche of the bulls, and those are problems that do not have a short-term or easy solution. It has been shown over the past 14 months that the market has been moving more on confidence and momentum than on actual price appreciation. Nonetheless, with the action seen this past week the confidence in the future has been shaken and the momentum totally destroyed. This was especially true on Friday when the market received the jobs report, which under normal conditions would have been received positively and with strong buying, instead, the indexes sold off and closed strongly in the red.

The DOW is now showing a weak chart where a strong sell signal has been given. As such, the very same computer trading systems that kept the uptrend going are now likely to turn around and give continued bearish signals and downside objectives, regardless of the fundamentals. Nonetheless, unless the problems in Europe get progressively worse, the probabilities don't favor more of the same. It is now probable that the DOW is getting into a sideways to slightly down trend for the next 6-9 months, with "normal" peaks and valleys type action. Short-term trading is also likely to come back and be "in vogue", as investors are probably not going to be comfortable getting into a buy and hold situation at this time. Volatility has strongly increased as well, and it is likely to stay around for several months if not longer. That means the DOW will likely generate wide swings in price, almost on an every-day basis.

On an overall basis, it is now likely the 10,000 level will become a major pivot point for the rest of the year. With 11200 now likely to be considered an "extended" high, the 10,000 level, both psychologically and chart-wise, seems to be a "natural" price level that the market will pivot around for the near future. A trading range of 1000 points above and below that level can now be expected for at least the next 6 months. Of course, this is dependant on the world's financial problems not getting much worse.

For this coming week, the DOW is likely to see a bit of bargain hunting as well as retest of what is now likely to be resistance. Nonetheless, that is not likely to happen until the traders find and feel comfortable with a support base they can somewhat trust. It is likely that with the negative action and red closes on Thursday and Friday that the first action on Monday will be to the downside. There is a good chance, though, that the first level of support established is the 200-day MA, currently at 10195. Nonetheless, if that level does not hold up, then drops down to Thursday's low at 9870 could be seen. To the upside, the 10618 level, on a weekly closing basis, will be very difficult to break. Nonetheless, on a daily closing basis, there is a slight possibility of a rally as high as 10725. By the same token, the 10500 level must be considered psychological resistance as well.

This week will be all about testing support and resistance and trying to establish parameters that are more in tune with the actual situation in the market and not with the panic selling that was seen. Once support is determined, the traders will likely begin to buy carefully, trying to ascertain just where the strong selling will appear. Much of this will depend on what happens over the weekend regarding Europe's financial problems. As such, if there is no further fundamental news of consequence this week, the market can get back to some form of normalcy after what has to be considered one of the scariest moments seen in the indexes in many, many years.

The spine of the up-trend has been broken, though, and the 10,000 level will now beckon as a magnet. It is therefore likely that after some backing and filling for the next week or two, that the DOW will be heading down to 10,000 to set that level up as the pivot point for the next 6-9 months. Monday is likely to be an important day for the week as the traders will likely be selling but at the same time looking to see where buying comes in. The 10195 to 10280 area is likely to be where support will be found, but if that doesn't hold up, you may see another strong down day with an objective of reaching the 100-week MA, currently at 9605. Should that level be reached, it is likely that strong buying will appear. It would not be surprising to see another strong down day after what happened last week.

NASDAQ Friday closing price - 2266

Like with the other indexes, the NASDAQ also gave a sell signal this past week, closing below the previous weekly high close made in January at 2317, and signaling that a major top is now in place. This is particularly important because the index had been the only index trading above the 200-week MA for the past few months and 2 weeks ago was on the verge of giving a buy signal of consequence, which would have meant the index was in one of the strongest bull trends ever. Having seen a drop in price of close to 15% over the past 2 weeks (more than any correction seen over the past 14 months) it can be said with some certainty that the uptrend is over. As such, this now confirmed downturn is the most indicative of all.

Nonetheless, the NASDAQ is still trading above the 200-week MA and that likely means the index is still likely to be seen as the best indicator for what is to come.

On a weekly closing basis, decent to strong resistance will now be found at 2317. Major resistance is found at 2529/2530. On a daily closing basis, strong resistance is now found at 2317/2320 from previous daily closing highs as well as from the 100-day MA. Above that level, there is minor resistance at 2415 and major at 2530. On a weekly closing basis, support is decent at 2239 and very strong at 2210/2212 from a previous weekly low close as well as from the 200-week MA. Below that, there is only minor to decent support at 2141. On a daily closing basis, support is very minor at 2213, and decent to strong at 2200. Below that level, support is decent at 2125.

The NASDAQ closed below the 100-day MA on Friday, currently at 2320, and now will show that level to be strong resistance, especially since that price has added strength with a total of 3 daily closes of consequence between 2317 and 2320 seen between January 8th and January 19. Support is now likely to be strong down at the 200-day MA, currently at 2200. The support there is also strong as the very important 200-week MA is currently at 2210, as such, the probabilities of the index trading between 2200 and 2320 over the next couple of weeks is high.

As long as the NASDAQ continues to trade and close above the 200-week MA, currently at 2210, the index will be show a slight bullish tone. Nonetheless, having dropped down to 2186 on Thursday, it is highly likely the 200-week MA will be a magnet for the traders at this time. Tests of that level are highly likely to be seen over the next couple of weeks as it will help to determine if the indexes are in a sideways market or whether a downtrend has begun. The 200-week MA will likely be the pivot point that determines that, much like the 10,000 level is on the DOW.

On the upside, the probabilities are now very high that a mid to long-term top is in place at 2535 and with that level now likely to be considered an "extended" high, the previous strong high at 2320/2323 is now highly likely to be very strong resistance, perhaps even unbreakable if the drop this past week was a true indication of weakness.

Like with the DOW, the probabilities favor weakness early in the week with the 2200 level being the objective. Should that level hold up, some bargain hunting is likely to come in, likely generating a rally over the next couple of weeks back up to 2320. It is important to note that the index did see a high of 2331 on Friday but then closed in the lower half of the trading range. With the 2323 level being resistance, it can be said the index tested that level on Friday and failed.

SPX Friday closing price - 1111

As with the other indexes, the SPX also gave a strong sell signal having closed below the previous high weekly close (prior to the recent run-up) at 1145. The index dropped all the way down to a strong weekly close support at 1066 and actually came dangerously close to major support levels on the daily, weekly, and monthly chart down at 1045. With the SPX being generally tied in to the financial community, whatever happens to this particular index is likely to signal the true state of world's banking affairs. That is important to know at this time.

The SPX, like the DOW, is also showing a successfully confirmed retest of the 200-week MA at 1225. With the index having closed below the previous weekly closing high at 1145, the probabilities are now very high that a mid to long-term top has been found.

On a weekly closing basis, resistance is strong at 1145. Above that level, there is no resistance until 1217 is reached. On a daily closing basis, resistance is strong between 1147 and 1150. Above that level there is no resistance of consequence until 1200-1217 is reached. On a weekly closing basis, support is strong at 1066 and strong again at 1040/1045. Below that level, there is decent psychological support at 1000. On a daily closing basis, decent support is found at 1095, minor at 1073 and strong at 1057.

The SPX has given back all the years gains as on December 31st it closed at 1115 and on Friday it closed at 1111. The entire bull run of the last 4 months was erased in one day leaving the traders confused as to what the rest of the year will bring. The index got down intra-week, to a weekly close support of consequence at 1066. It must also be mentioned that back in the year 2003 when the index was in an established bull run and a correction from the weekly closing high at 1157 was in effect, over a period of 6-months the index got back down to 1066, and from that level re-started and continued the major up-trend which resulted 4 years later with a high at 1575. As such, not only is the weekly closing level at 1066 important as a "recent" support, but also likely indicative as to the overall trend, going back to 2003.

Having closed in the lower half of the week's trading range, if the SPX follows "normal" chart trading principles, the probabilities favor the 1066 level getting broken, at least intra-week, and a drop down to the 100-week MA, currently at 1030 seen. The probabilities are high that the index will be trading between the 100 and 200 week MA for the next few weeks or until the fundamental outlook for the future clears up.

On the daily chart, there is good support at the 200-day MA, currently at 1094. By the same token, the 100-day MA, currently up at 1140 should be seen as resistance. Additionally, from previous daily high closes of consequence, the 1147-1150 level must be considered strong resistance. Like with the other indexes, the probabilities favor early week weakness with the 200-day MA likely acting as not only as support but as a pivot point. If broken, drops down to 1030 would likely be seen.

One of the risks involved in a major bull run is that when a top is located, the amount of profit taking occurring can overwhelm even the most pessimistic views. Such was the case this past week when the market began to drop because of the problems associated with Greece and with Goldman Sachs. As the drop gained momentum, the selling increased and once the strong previous high support levels got penetrated, strong selling began to occur. Soon thereafter, almost in a flash of a moment, all the gains painfully achieved over a period of 4 months disappeared, leaving big questions and no clear answers.

Strong damage to the chart, as well as to investor confidence, was done this past week and now the same technical and computerized trading that pushed the market up for a good portion of the last 14 months is now likely to work against the indexes and keep the selling pressure coming. Fundamentals will likely be ignored at this time, just like they were ignored on Friday when the Unemployment and Job creation numbers came out, and continued profit taking, as well as margin call liquidations, will likely be seen the first couple of days of the week.

Having determined that a top, at least for the mid-term (3-6 months) is in place, rallies will now likely be sold until such a time that the indexes uncover where the big support is found, if it is found. The lack of confidence in the trading system, created when the indexes fell close to 10% in one day, will be very difficult to recover, even under the most favorable conditions. As such, buying may now continue to be light, preventing big rallies for the next 3-6 months.