DOW Friday close at 8077

The DOW continued its downward slide this past week but was successful in holding itself above previous lows of consequence, on both an intra-day and weekly closing basis. With no clear signal given as to the direction the index will take this coming week, further action will likely depend on this coming week's earnings reports as well as some yet-to-be-determined catalyst.

The DOW has now done sufficient chart action to the downside to provide a clear re-test of the lows. Nonetheless, the index has not done enough to the upside to confirm the re-test as having been successful. In addition, this past week's trading range was small in comparison to the previous week. As such, it is likely that the coming week there will either be a breakout or a breakdown of that trading range. Such a break will likely provide a strong reaction in one direction or the other.

On a weekly closing basis, support is major at 8046 (lowest weekly close in 5 years). Should that level break, decent support will be found at 7740 and major support at 7528. On a daily closing basis, support is decent at 7946 and major at 7552. On an intra-day basis, support is strong at 7882 and major at 7449. On a weekly closing basis, there is minor resistance at 8516, decent to strong at 8829 and very strong at 9035. On a daily closing basis, there is decent resistance between 8228 and 8281, decent again at 8516 from the 20 and 50 day MA, and very strong between 9024 and 9035.

As I mentioned above, the close on Friday was indecisive. The lowest weekly close in 5 years at 8046, as well as an important intra-day support at 7882, held up and provided a positive sign. Nonetheless, the index failed to show any strength at the end of the week that would indicate further upside movement this coming week. As such, the range this coming week depends on a catalyst that is yet-to-be-determined. With the earnings report season in full swing, it is possible that some of those could be a catalyst. Nonetheless, this coming week the FOMC meeting will take place and though the Fed has done just about everything it can do, investors may still look for direction from the minutes of the meeting. In addition, GDP comes out next Friday, at the same time as initial unemployment claims come out, and that could have an impact on the market.

I believe that the probabilities "slightly" favor the upside because of the following reasons: 1) Obama is now in office and hope abounds. 2) Stimulus package being unveiled this week. 3) Inability of the bears to break the market when they had it on its back. 4) Financial institutions showing signs they have found support. Nonetheless, the picture is still very cloudy and with nothing tangible to hold on to yet, the bears still continue to hold the "upper hand".

I believe that this past week's trading range between 7909 and 8292 holds the key to what this coming week will do. That range was small in comparison with other weeks and with the market looking for direction, it likely means that a break above or below that range could generate aggressive action in that direction.

Possible trading range for the week could be 7957 to 8602.

NASDAQ Friday Close at 1477

The NASDAQ also continued its downward move but this index has been able to maintain itself substantially above previous lows of importance. As such, it must be said that the general market is not reacting as negatively to the recent weakness as the financial or blue chip stocks are.

Nonetheless, the NASDAQ did close on Friday below an important pivot point at 1500 that has been a clear barometer for the index for the last 3 months. Such a close will likely keep the selling pressure on until some catalyst is able to turn the index around and begin to close above that level once again.

On a weekly closing basis, there is no previous determined support until the 5-year low at 1384 is reached. That support is considered to be major, especially since back in 2001 the 1423 weekly closing level of support generated a move back up over 2000 in just 4 months. On a daily closing basis, support is decent at 1441, strong at 1398 and major at 1316. On an intra-day basis, support is very strong at 1398/1400 from several previous intra-day lows as well as from a gap between 1387 and 1398. On a weekly closing basis, resistance is minor at 1536 and again at 1564, and strong at 1632. Above that level, support is non-existent until 1711/1721 is reached. On a daily closing basis, resistance is now strong at 1507 and minor at 1526. Above that level decent resistance will be found at 1576 and very strong at 1651.

It must be noted that the positive nature of the previous weeks late rally and close at 1529 has now been totally negated and with the close below the 1490-1507 level, the index is once again under selling pressure. The index did have a reversal day on Friday with higher highs and lower lows and a close in the green and that could relay itself into a rally on Monday. Nonetheless, the index did break below the previous intra-day support at 1441 with a drop down to 1434 and now looks like a new attempt to close the gap at 1387, or at least test the support at 1398, could occur.

Like with the other indexes, Friday's action and close left many questions unanswered but unlike the DOW with its probabilities slightly favoring upside movement, this index slightly favors downside movement from here. Drops down to the 1398 level now seem possible.

The NASDAQ has done enough downside movement to satisfy the need for a re-test of the lows. Nonetheless, like with the other indexes, it has not yet done enough to the upside to give a successful-re-test-of-the-lows signal. A move above this past week's high at 1522 is needed to turn the index around and start generating a rally.

Without a shadow of a doubt, the 1500 level is an important pivot point and as long as the index is trading, and more importantly closing, below that level, selling pressure will continue.

S&Poors 500 Friday close at 831

The SPX successfully tested the 800 level on several occasions this past week and was also able to close out the week above an important support at 829. This is an important fact as the financial industry continued its downward slide this past week with several stocks making new multi-year lows. To be able to close out the week on a positive note, after so much negativity surrounded the index, must be considered a positive signal. It must also be noted, that this index has been the leader on the charts and most often determines what the indexes will do.

In looking at the chart back in 2202/2003, it must be noted that the SPX is showing an almost identical pattern of trading that is eerily similar. Back in the year 2002 the SPX had a weekly closing low of 800 from which a rally lasting 8 weeks occurred that took the index up to a weekly closing high of 939. That rally was followed by weakness and a drop to test the previous low close at 800 with a weekly closing low of 829. From that weekly closing low, the index generated 1-year rally that culminated with a weekly closing high of 1163. It is important then to look at the fact the index made a weekly closing low of 800 on November 30th and 5 weeks later made a weekly closing high of 931. This has now been followed with a drop to Friday's closing low of 831. If the index follows the same pattern as 2002/2003 and is able to confirm this week's closing low as a successful re-test of the lows, a rally of consequence could occur.

On a weekly closing basis, support is major at 800 and decent at 829. On a daily closing basis, support is strong at 805 and major at 752. On a weekly closing basis, resistance is decent at 872 and very strong between 932 and 940 (from two weekly closing highs in 2002, as well as a recent weekly closing high at 940 and the most recent weekly closing high at 932). On a daily closing basis, resistance is now decent to strong between 840/850 and decent at 870 from previous daily closing lows as well as from the 20 and 50-day MA's. Above that level resistance is decent at 909/913 and strong at 934.

It is evident that the 800 level is a major psychological support level. This past week, in spite of the strong weakness in the indexes, the SPX tested that level on 4 different occasions without breaking. It is likely that without a catalyst to generate further downside movement, that the 800 level could remain inviolate and under that scenario it is likely the bears would begin a strong short-covering phase. It is also evident that this coming week could be very important as the small trading range between 804 and 849 will likely get broken in one direction or the other. Such a break, if substantial and decisive, will likely generate aggressive participation by the traders and a clear short-term direction.

In the case of the SPX, the probabilities also favor the upside as this is the one index that if it was going to break, should have broken this past week. With the aggressive selling of the financial industry, the index should have been highly vulnerable to a break of support, and yet it did not happen. Such a failure will begin to weigh heavily on the minds of the bears and the smallest indicator that a rally could occur, could generate aggressive buying. In addition, the close on Friday at 831 (close to but above the 2003 close at 829) will be closely monitored and if the index is able to get above last week's high of 849, the bears will start to put two and two together and likely "head for the hills".

Nonetheless, as of this writing, it still is a flip of a coin as to what the index will do. Nothing has been clearly defined yet and therefore until it happens, it is pure guesswork and probability assessments.

The indexes came in this week anticipating an Obama rally and what they got was a further collapse of the banking industry starting with a 70% decline in the Royal Bank of Scotland on Monday. After a week of simply trying to survive and avoid a clear breakdown, the indexes now find themselves at a crossroad where the slightest catalyst could push them in one direction or the other. It is also evident that as of Friday's close, the traders had no clear idea of what will happen this week. As such, a watchful eye is the only thing that can be advised at this time.

It must be mentioned, though, that the probabilities do lean slightly on the side of upward movement as "survival" must always be considered a positive sign. With the indexes generally having a relatively positive close on Friday, on the heels of strong weakness, it must be said that "survival" was successful on that day.

It is probable that reports this week (earnings, FOMC meeting, GDP, initial claims) will be a catalyst. Unfortunately few of those will be available until mid or end of the week. As such, Monday and Tuesday's action in the market will likely be a lot like "treading water".