DOW Thursday close at 8281

The DOW continued to generate a corrective phase with a lower close this week than last week. The index closed on the lows of the week and very near an important support level that if broken could generate further downside action of consequence. In addition, the index was also able to go above last week's high and successfully test, on the daily closing chart, the resistance up at 8575, with a high close at 8529 this past week. The rally seen is now considered a successful retest of the highs, especially when the index was able to close below the low close of the week at 8300.

The negative action seen on Thursday was stimulated by a higher than expected non-farm payroll number that put into the question the continuation of the recovery that has been seen over the past few months. In addition, the index seems to have built a Head & Shoulders formation on the daily chart with a left shoulder at 8592, the head at 8878, and the right shoulder at 8580. A break of the neckline down at 8259, if confirmed, would offer an objective of 7640.

On a weekly closing basis, decent resistance is now found at 8575. Above that level, strong resistance is seen at 8799. On a daily closing basis, decent to strong resistance will be found between 8504 and 8529, from the most recent high closes. Above that level, resistance is strong between 8556 and 8575. Resistance is very strong at 8799. On a weekly closing basis, support is decent to strong at 8269 and very strong at 8001 to 8046. On a daily closing basis, the support is very strong between 8269 and 8300. Below that level, strong support will be found between 7937 and 7957.

Having closed on the low of the day on Thursday at 8281, and having no scheduled reports of consequence until Wednesday, the DOW is now at risk of breaking the important daily close support between 8269 and 8300 (8227-8246 on an intra-day basis). A break of that support would likely thrust the stock down, in short fashion, to the 100-day MA currently at 7978. It is likely that in the first few hours of trading on Monday some direction for the week could be seen. The direction could change after the reports come out, but it is possible and maybe even probable, that the DOW will get down to the 8000 level before any buying of consequence comes in.

Nonetheless, if the index this week is able to hold itself above the low for the last 6 weeks at 8227, the probabilities of a trading range for the next few weeks between 8227 and 8592 will increase. That trading range was in effect from May 4th to May 29th. It is certainly within the realm of possibility that the entire month of July could be traded within those parameters and within that small trading range.

The bears do have the momentum going for them at this time and it is likely that Monday will be the best day for them to push down as hard as they can to break supports. There is no news due out Monday and the index closed under selling pressure on Thursday. It is therefore likely that Monday will be a pivotal day for the index.

Possible trading range for the week is 8316 to 7978.

NASDAQ Thursday Close at 1797

The NASDAQ ended up having an important week this past week as the index was able to generate a successful retest of the intra-day highs at 1880 when it rallied up to 1862 and gapped down on Thursday. In addition, on the weekly closing chart chart, the index did have a successful retest of the high close at 1859 with a close at 1838, as well as generated a sell signal on Thursday when the index closed below the 1827 level seen 2 weeks ago.

With the sell signal given on Thursday, the probabilities of a drop down to the 50-week MA at 1760 are now high. In addition, the index gapped down on Thursday thus increasing the bearishness of the late drop at the end of the week.

On a weekly closing basis, resistance is decent at 1838 and strong at 1859. On a daily closing basis, resistance is minor at 1827, strong at 1846, and very strong at 1859. On a weekly closing basis, there is no support until the 50-week MA is reached down at 1760. Below that, there is decent support at 1680 and then nothing until decent support is again seen at 1552. On a daily closing basis, decent to strong support is found at 1765 with a previous low close of some consequence at that price, as well as the 50 day and 50 week MA's. Below that level, there is minor support at 1692 and a bit stronger at 1664. Strong support will be found at the 200-day MA, currently at 1636.

The gap seen in the NASDAQ on Thursday, as well as the close on the lows of the day, has to be worrisome to the bulls. The close on the lows of the day increases the possibility of a second gap on Monday, thus generating a possible breakaway/runaway gap formation. If such action happens and is confirmed, with a close next Friday below 1760, it would likely mean that the high of the short-covering 4-month rally has been seen. No further upside would be likely at this time.

The 1754/1765 level will be an important pivot point this week. At that level there are several important supports that if broken would bring in aggressive selling. In that area you have the 50-week and 50-day MA's as well as the lowest daily close since May 28th (5 weeks) at 1760. In addition, the lowest intra-day low is at 1754 and if that low is broken, the index has no previous support of consequence until 1664 is reached.

It is evident, that the NASDAQ's outlook for the near future is dependant on what happens at these levels. With the earnings season starting on Tuesday, followed by several other earnings reports of importance in the following days, it is possible that a short-term decision of consequence is near. By the same token, if there are positive surprises in the earnings reports, it is likely the index will simple continue on its sideways trading range until a new catalyst is found.

Having said that, the probabilities are high that the NASDAQ will be moving down close to the levels of support mentioned. A move down to that area would be commensurate with the DOW dropping down to the 7900/8000 level.

Possible trading range for the week is 1826 to 1760.

S&Poors 500 Thursday close at 896

The SPX continued its recent downward slide with the third weekly close in a row in the red. In addition, like with the other indexes, the SPX successfully tested the previous daily close high at 946 with a close up at 927 and an intra-day rally up to the very important and strong 931 resistance level. In addition, on the weekly intra-week chart, the SPX will have successfully tested the previous high if the index generates a lower low than last week. Having closed on Friday on the low of the week, the probabilities of that happening are high.

The SPX, just like the DOW, also shows a Head & Shoulders formation with the neckline being close by at 888. With the downward spike-type action seen on Friday, the possibilities are high that the index will be getting near the neckline on Monday.

On a weekly closing basis, resistance is strong at 929/931 and very strong at 946. On a daily closing basis, resistance is strong at 927/929 and very strong at 949. On a weekly closing basis, support is strong at 882 and minor at 872. Below that level there is minor support at 825 and very strong support at 800. On a daily closing basis, there is strong support at 893 and then again at 882. Below that, decent support will be found at 850 from the 100-day MA. Strong support will be found between 787 and 805.

As mentioned above, the SPX is showing a Head & Shoulders formation with the left shoulder at 929, the head at 949, and the right shoulder at 931. The neckline is at 888. A break of the neckline gives an objective of 830 to the downside. In addition, the very important 200-day MA is currently at 888, giving that level added importance. It is evident that if the index is able to break not only the neckline of the H&S formation, but the 200-day MA at the same time, that aggressive selling will come in.

With the index having closed on the lows of the day on Thursday, as well as with a downward spike type action, the probabilities of the index getting down to that very important level on Monday are high. With little news of consequence expected until Tuesday night/Wednesday morning, the index cannot expect to see any strong buying prior to those reports. As such, the sellers will likely be in control the first part of the week and could generate the kind of break of support that would prevent the index from generating a strong rally thereafter without some exceptionally good news.

Possible trading range for the week is 907 to 872.

Though the probabilities of something major happening in the month of July are very limited, the marketplace is now set up for a possible clear signal that the upside run the stock indexes have enjoyed over the past 4 months is at a temporary end. Should the support levels mentioned above get broken this coming week, the index will likely signal that a corrective phase has begun and that at least a 10% correction from the highs seen 2 weeks ago will occur.

Having closed on Thursday at the lows of the week it is highly likely that the index will continue under pressure at the beginning of the week. With no reports due out on Monday and Tuesday the probabilities favor a break of nearby support levels this week. Nonetheless, the break of the support levels nearby will not necessarily cause a strong downturn to occur as it is not likely that until August or September will the marketplace be set up for a major correction, if there is one to come.