DOW Friday close at 9093

The DOW continued its upward climb, breaking above the December highs at 9088, and closing once again on the highs of the week, thus increasing the probabilities of further upside this coming week. The market continued to receive better-than-anticipated earnings reports and with no negative news of consequence, the buyers were able to generate continued buying, while the sellers awaited the economic reports due out this coming week.

The DOW was successful in closing above an important weekly close resistance, going all the way back to the last recession in 2002, at 8896, as well as above the resistance seen in December at 9035. The index has now set its goal on trying to break the highest weekly close resistance seen since the market broke down in October of last year at 9325.

On a weekly closing basis, decent resistance is found at 9325. Above that level there is no resistance whatsoever until the 100-week MA is reached up at 10710. On a daily closing basis, there is minor resistance at 9265, a bit stronger at 9388, and very strong at 9625 (highest daily close since October 6th. On a weekly closing basis, minor support will be found at the 50-week MA currently at 8780. Below that level, very minor support around 8500, decent support at 8296, and strong support at 8147. On a daily closing basis, there is psychological support at 7970/8030, but below that there is no support until the 50-day MA is reached down around 8550. In addition, there is decent support between 8419 and 8565 from several previous daily-closing lows in that area. Below that level there is strong support at the 200-day MA presently at 8275.

From a chart perspective, the close on Friday on the highs of the day/week should generate follow-through this coming week with a possible rally all the way up to the mid 9300's, based on a weekly closing basis. If the mini breakout on Friday is not immediately negated on Monday, there is no resistance of consequence until those higher numbers are reached.

It must be mentioned, though, that the index is very overbought (10 days in a row of higher lows and higher highs than the previous day) and this is a week that several economic reports of consequence are due out that could make a difference. On Tuesday it's Consumer Confidence, on Wednesday it's Durable Goods, and on Friday it's GDP. Having seen 72% of the earnings reports coming out better than anticipated, it is possible, maybe probable, that the economic reports will come out the same and help generate further upside. Nonetheless, it is also possible that "after" the reports come out that there will be a strong profit-taking drop in price, expecting reports to weaken for the next quarter.

Keep in mind that during the last 12 years, the indexes have tended to get into a downtrend from August through October. On 8 of the last 12 years, the DOW has dropped at least 1326 points during that period of time. It was only during those years the market was in a strong bull trend (2003-2006), that the index did not show a downward tendency. As such, the question that will be asked in August, is whether the market is now in a bull trend or not.

It must also be noted that next Friday is the monthly close and there are several important levels to consider on that chart that will likely be in play. To begin with, the monthly chart, going back to the last recession in 2001 and 2002, shows a major low close at 8848 and a major high close at 8896. Those two levels, on a closing basis, have to be considered strong resistance. In addition, the 200-month MA is currently around 8700. Though it is possible to close slightly above the line without making a major break, a close substantially above that line could be indicative of further upside. It is also very important to note that the DOW is showing a reversal month in July, with higher highs and lower lows than in June. A close next Friday above the previous months high at 8878 would make it into a positive reversal and would likely stimulate higher prices next month. A close below that level next Friday would make it into a negative reversal and likely generate further downside of consequence.

As you can see, there is a strong underlying current of chart points and fundamental reports this week that will likely have a lasting effect on the index. As such, it can be said that how the index closes at the end of this week will be strongly indicative of whether the market is into a V-shaped recovery and in a bull-market, or whether it is reaching the top of a short-covering rally and ready to go back and test the lows.

Due to the strength at the end of the week and no important reports until Tuesday, it is likely that the index will trade higher on Monday. Nonetheless, because of the importance of the 8896/8878 level on the monthly chart, it is likely that at some point during the week, and likely more so toward the end of the week, the DOW will find itself trading around that level.

NASDAQ Friday Close at 1965

The NASDAQ was able to close the major daily and weekly gap that had been left open between 1905 and 1947 this past week. In closing the gap, the index has confirmed that last year's downtrend is over. Now the question that will be asked is if the market is now in a V-shaped recovery and/or a bull-trend or in the long process of bottoming out and near the top of a long sideways trading phase.

The NASDAQ, though, was the only index that closed in the red on Friday and did not close near the highs of the week. In addition, the index had an inside day on Friday, at a time the other two indexes were able to make new highs. As such, it is evident that selling of consequence is starting to be seen.

On a weekly closing basis, there is no recent resistance seen until the 100-week MA at 2099 is reached. Nonetheless, going back to 2001/2002, resistance is found between 2022 and 2057. On a daily closing basis, only minor resistance is seen at 2092. On a weekly closing basis, support is minor from a previous high weekly close at 1859 and strong at 1756. On a daily closing basis, support is minor for a previous high daily close at 1862 and strong between 1746 and 1765.

The chart of the NASDAQ is probably the most interesting one of all as there are so many important resistance levels in play at this time that it is likely this index will play an important part in deciding what is to happen during the next few months. To begin with, in looking at the monthly chart, the 100-month MA (currently at 2000) held the index back during the first 3 years of the bull market that started in 2003. It was not until 2006 that the NASDAQ was able to break decisively above that line. It must also be noted that the 100-month MA has never been broken while in a down mode (trending down instead of up) and therefore is less likely to get broken at this time.

It is also important to note that since 1998, there have been 2 major intra-month highs and 2 major intra-month lows between 2026 and 2099 making that level very strong resistance on the monthly chart. In addition, it must also be noted that the 100-week MA is currently at 2099, adding strength to the resistance. Putting all this together, the probabilities of the NASDAQ getting much above 2000 are very limited.

Nonetheless, on the bullish side, the index is having a positive reversal month in July (higher highs and lower lows than in June), and if the index closes above June's high at 1880 on Friday, it will be a positive reversal. As such, further upside would be expected in August. During the last 20 years there have only been 2 positive reversal months and they both generated strong follow through to the upside. In addition, if the index is able to close above 2099 at any time or above 2057 at the end of August, the index could get explosive to the upside as all resistance levels of consequence would be broken, as well as the 100-month MA.

The probabilities favor the index failing at these levels, if for no other reason than the last bull run seen in 2003 only came after a successful retest of the lows, something the NASDAQ has not yet seen this time around. In addition, I do believe the fundamentals are not yet strong enough to sustain further rallies of consequence at this time. With earnings reports coming out positive mainly because of cost cutting measures (not necessarily an increase in sales), it seems unlikely that the index is now in a bull market.

With the NASDAQ closing at 1965 on Friday, though, it is likely that the index will at least see a rally to somewhere above 2000, with the possibilities favoring a high between 2029 and 2066.

S&Poors 500 Friday close at 979

The SPX was successful in closing above the highest weekly close at 968 since the index broke down in October, and now has the psychological 1000 level in its crosshairs. In addition, the index was able to get above the intra-week high seen during the last recession in 2001/2002 at 954, as well as above the 50-week MA on the chart. As such, the probabilities of the stock generating follow through to the upside, this coming week, are high.

In addition, the index also had a reversal month with lower lows and higher highs and if the index closes out the month above June's high at 956, the possibilities of follow through to the upside in August will be strong. It must be noted, though, that 1000 represents a psychological resistance level of consequence and without strong fundamental news to generate further buying, it is not likely that the index will be able to go much higher.

On a weekly closing basis, resistance is only psychological at 1000, no other resistance is found until the 100-week MA currently up at 1163 is reached. Nonetheless, on the monthly chart, resistance is strong at 1014 from the 200-month MA. On a daily closing basis, resistance is decent at 985 and strong at 1006, from a double top at that price. On a weekly closing basis, support is non-existent until strong support is found at 879/882. Below that level there is minor support at 825 and very strong support at 800. On a daily closing basis, there is minor support at 946 from a previous daily high close, minor support at the 50-day MA at 919, and strong support at the most recent low close, as well as 200-day MA at 879.

Like all the indexes, the SPX has been moving straight up during the last 10 days without building any kind of support level from which the bulls can continue to buy with confidence, or limitation of risk. As such, the index is highly sensitive to any negative news that may come out. With several important economic reports due out this week, and reaching a major psychological area of resistance at 1000, it is likely the index will need continued good news to maintain the rally.

It is important to note that the 200-month MA is at 1014 and that the index has a previous double top, on the daily closing chart, at 1006. As such, it is likely those levels will be seen intra-week this week, but there is doubt as to the index's ability to generate a close above or at those levels. With decent resistance, on a daily closing basis, at 985, it is possible that will be the highest closing price seen this week. Keep in mind that any lower close below 968 next Friday would give a failure-to-follow-through signal on the weekly closing chart.

On a positive note, though, if the SPX is able to generate a daily close above 1006 as well as a close next Friday above the 200-month MA at 1014, the probabilities of strong movement to the upside will increase exponentially. As such, will all these important levels coming into play this week, it is likely that a major decision for the immediate future will have been made when it is all over and done.

The indexes are probably facing the most important week in 10 months. With the daily, weekly, and monthly charts all at important resistance/pivot point levels, it is likely that whatever happens at the end of the week will impact the market for the next 3-6 months. Analysts continue strongly split between a sideways market with some type of retest of the lows forthcoming over the next few months or a V-shaped recovery with a bull trend scenario, and further upside of consequence to be seen. With such an even disparity of opinions, it must be said that both sides probably have an equal chance of being right. With important reports, important chart levels, and important recent moves in the indexes, the traders will probably take direction based on what happens this week.

Having closed on the highs of the week on Friday, the probabilities favor strength at the beginning of the week, especially since there are no economic reports of consequence due out until the first one on Tuesday. Even then, it is probably the Durable Goods on Wednesday and the GDP on Friday that will have the most impact. It is also important to note that these reports are already being anticipated to be better than the last ones, as such the reaction after the reports as to what they will show the following month, is not something that can be measured at this time.

At this stage of the game, any movement of consequence, especially if unexpected, will likely have some meaning attached. At this point, both bulls and bears are likely to get involved in the market and whoever ends up winning the battle on Friday, will likely have the upper hand for the next few months. The recent action favors the upside, but history favors the downside.