DOW Friday close at 8018

After several weeks of trying to get up to the 8000 level, the DOW was finally able to accomplish it this past week with a close on Friday at 8017. Nonetheless, the index first had to retest successfully the 7440 intra-day low made in November as well as the 7552 daily closing low. In addition, it needed help from the G-20 meeting on Thursday to generate the rally that took it over 8000. The index has now accomplished fulfilling the chart formation that evidently needed to be fulfilled when the short-covering rally from the temporary or long-term bottom began.

It is evident that the DOW is now at a very important pivot point that will likely determine exactly where the economy is, in correlation to all the actions taken by the Fed in recent months. Up until now, this move has been called by many as only a short-covering rally. At this time, though, whatever action is seen this coming week or two will likely represent the actual thoughts and beliefs of the market.

On a weekly closing basis, resistance is strong between 8001 and 8046, from two previous low weekly closes as well as from the 20-week MA. There is some minor resistance at 8281 but above that level there is no resistance of consequence until 9035 is reached. On a daily closing basis, there is decent resistance at 8043 from the 200-day MA and then again at 8078 from a previous minor close at that price. Above that level minor resistance is found at 8281 and at 8375. Strong resistance will be found between 8824 and 9035. Major resistance is up around 9400 from several previous high daily closes as well as the 200-day MA. On a weekly closing basis, support is non-existent until the previous low close at 6627 is reached. On a daily closing basis, support is decent to strong at 7522/7552, minor at 7278, minor again at 6726, and very strong at the 12-year daily closing low at 6547.

This coming week the new earnings quarter will kick off with AA reporting on Tuesday. With the G-20 meeting over and the slew of important reports that came out this past week being uneventful (as expected), the index will likely key on earnings for the next week or two. There are no other reports of consequence due out this week. It is important to note as well, that the week is short due to the Easter holiday. As such, it is possible the traders will simply push everything over to the following week before showing their hand.

At this time, though, it must be said that the DOW does have momentum in its favor which means that any report that comes out as anticipated or better, is likely to generate further upside. On the other side of the coin, the resistance found at these levels is strong and it will take additional buying to the buying seen recently, to generate further upside.

It must be mentioned that the DOW had an inside day on Friday (lower highs and higher lows than the previous day) as well as a very small trading range of 121 points, compared to the 305 and 312 seen the two previous days. Not keeping long positions over the weekend might have been one of the reasons for the uneventful day, but the resistance up at this level might have been the main reason. Which of the two reasons kept the index down on Friday will not be known until the market starts trading on Monday. Nonetheless, if it was the resistance level that stopped the rally, then it is likely the index will head down toward 7550 to re-test and confirm the support that has been built at that price.

Either way, it is not expected that the DOW will be doing anything of consequence for the first two trading days of the week. Intra-day rallies as high as 8315 or drops down to 7550 could happen, depending on what direction the short-term traders feel has the least amount of resistance. Nonetheless, based on the fact the index is overbought, at major resistance, and that no follow through to Thursday's strong rally was seen on Friday, I believe the probabilities lie on the side of lower numbers the first 2 days of the week.

It is very important to note that the chart formation has now been fulfilled and that any further "movement of consequence" in either direction will likely be indicative of what the traders actually believe are the facts, and not the rhetoric.

I cannot give you at this time a trading range for the week that makes a lot of sense, especially since the action of the market will likely pivot, at least at first, on what the earnings reports say, as well as how they are evaluated. Nonetheless, it is my belief that the market has been on a short-covering rally that is likely at its peak and that the lows seen just 4 weeks ago will be re-tested before any further upside is generated.

NASDAQ Friday Close at 1621

Once again, the NASDAQ was able to outperform the other indexes to the upside and generate a small break of weekly close resistance when the index was able to close above a previous weekly high close at 1592. Nonetheless, the major resistance up at 1632 was not even approached or in risk of being taken out, so the break of the resistance at 1592 leaves questions unanswered.

Nonetheless, the index did confirm a break above the 20-week MA that was generated last week as well as showed the ability to go above, and close above, a previous and important high 1599, giving the index a positive look. It is important to note that in the past, sustained rallies in the indexes have normally been lead by the DOW or the SPX and therefore having the NASDAQ lead the way up, makes the move a bit suspect.

On a weekly closing basis, resistance if very strong at 1632. Strong to major resistance is found at 1721. On a daily closing basis, resistance is very strong at 1652. Above that level there is no resistance of consequence until the index gets up to strong resistance at 1780 and major resistance between 1817 (200-day MA) and 1844 (last resistance since the downtrend began). On a weekly closing basis, support is minor at 1530 and strong between 1474 and 1500. Below that level, strong support is found at 1384 and major at 1294. On a daily closing support is minor at 1525/1517 and strong at 1502. Below that, there is minor support at 1457, strong support at 1316, and major at 1267.

The NASDAQ broke through and closed above, on Friday, a level of daily and weekly close resistance between 1587 and 1592, that can be considered important and possibly even indicative. It is evident that if the indexes have reached a temporary top and are ready to correct and re-test the lows, that this level would/should have held up. It didn't. This certainly puts the bears in a quandary, as now they must try to generate a failure-to-follow-through signal on Monday by closing the index below that important level and negating the break. There is still strong resistance above with the 1666 level on an intra-day basis (1652 on a daily closing basis and 1632 on a weekly closing basis) looming. Nonetheless, the index has momentum to the upside and with the break of this important resistance, is likely to see some follow through on Monday. Such a signal cannot be easily ignored.

Nonetheless, the absence of any kind of retest or correction on the weekly chart is glaringly evident and it seems that it is only a matter of when, rather than if, a correction is to occur. The 1666 intra-day level on the weekly chart (1657 on the daily closing chart) seems to jump out and state that rallies above that level are not likely to happen at this time without some strong and substantial reason for them to happen. With the intra-day high seen this past week at 1623, it seems likely that the top to this rally has either been accomplished or is within a few points of being accomplished.

Keep in mind that the resistance at 1666 in the NASDAQ is from a previous high, not from previous low, as the other 2 indexes are experiencing. As such, the resistance in the NASDAQ is much more likely to stop the rally than anything that can be seen in the other two indexes. It must also be mentioned that the index has left an open gap between 1553 and 1577 that is very likely to get filled soon.

With the rally at the end of Friday as well as the positive close, if there is any follow through on Monday, you could see the NASDAQ get up to 1632-1636 before any downward action begins. Possible trading range for the week is 1636 to 1502.

S&Poors 500 Friday close at 842

The SPX was able to close above the 20-week and 100-day MA's, both at 832, on Friday. Such a close is a positive and likely to generate some follow through to the upside. Nonetheless, the index is now reaching levels of previous high close resistance (rather than low close resistance) and therefore will begin to encounter much more selling than has been seen during the last 4 weeks.

It is becoming very evident that a bottom (temporary or long-term) was set when the index dropped down to the 666 level. Nonetheless, like with the other indexes, no retest of the lows has yet been seen. With strong resistance looming above ominously, as well as the index in a very overbought condition, rallies from here are likely to be very limited and met with strong selling by the bears.

On a weekly closing basis, resistance is very strong at 868-872 from two previous low closes of consequence as well as the first previous high weekly close of consequence seen on the chart. Above that level the next weekly close resistance is found at 931. On a daily closing basis, the next decent to strong resistance level is at 869/874. Above that there is no strong resistance until 934. On a weekly closing basis, support is decent at 825, strong at 800, and then nothing until major support is reached down at 683. On a daily closing basis, support is minor at 825, decent to strong at 805, and again at 787. Below that level, support is strong at 752 and major at 676.

In looking at the chart of the SPX, it seems evident that a green close on Monday could generate enough buying to take the index up to the 868-874 level of resistance. Nonetheless, at this time it seems very difficult to see any further upside without some strong fundamental news coming out. News of such strength is not probable to be seen during this earnings quarter and therefore the probability of the index correcting back down, sometime during the next few weeks, is very high.

On the other side of the coin, without the opposite kind of strong negative news, it is also becoming evident that drops below 740/750 will be very difficult to accomplish. It therefore can be expected, with a great degree of certainly, that the index will be trading between 870 and 740 during the next 4-8 weeks, if not longer.

With the index having closed slightly above a decent to strong daily close resistance between 832 and 835 on Friday, as well as above the 20-week and 100-day MA's, the probabilities of further upside on Monday are good. Nonetheless, if the index closes in the red below the previous resistance level at 832 on Monday, it can also be said that the probabilities will have increased of the index having found a temporary top to this rally. If that happens, a failure to follow through signal will be given.

Possible trading range for next week is 868 to 804.

I do need to mention that all three indexes closed out the month on Wednesday at or below their monthly breakdown points. The DOW closed at 7609, slightly above the previous and major monthly close at 7592, the NASDAQ closed at 1529, below a minor high monthly resistance level at 1577, and the SPX closed at 797, below a very important breakdown point at 800. These monthly closes seem to suggest that nothing has been accomplished as of yet to the upside, other than a re-test of what is now resistance.

At this time, the indexes do seem to have momentum to the upside and the possibility of further gains this week exists. Nonetheless, the kind of resistance that all the indexes are now reaching is such that without actual good news (rather than reports that are not as bad as anticipated), it is likely the indexes will not be able to go much higher.

In all three cases, the indexes are overbought and in need of a correction as well as of a re-test of the lows. It is difficult to imagine that aggressive buying can come in at these higher levels without any kind of chart confirmation that a low is actually in place. As such, it is likely that at some point this week, or at the latest next week, a strong correction will be seen.