DOW Friday close at 8575

The DOW, with all the positive news that came out this week, generated a buying euphoria that allowed the index to slice through the minor resistance levels above, thus projecting a possible rally up to the 9000 level in the process. The buying was consistent this week and picked up strength after the results of the stress tests were revealed.

With this rally, if further upside up to the 9000 level is seen, the chart outlook will change giving the possibility of a V-shaped recovery more credibility. The bulls are now committed to taking the indexes higher and any failures at this point would be considered unexpected. With nothing fundamentally negative likely to come out for several weeks, the index seems to have a "free pass" for another 400-500 points to the upside.

On a weekly closing basis, minor to decent resistance is found between 8829 and 8852. Strong resistance will be found at 9035. Major resistance will be found at 9351 with the highest weekly close in the last 6 months, as well as the 50-week MA, at that price. On a daily closing basis, there is some minor to decent resistance between 8829 and 8835, strong resistance at 8924/8934, and very strong resistance at 9035, from the highest daily close since November as well as from the 200-day MA. On a weekly closing basis, support will now be found at 8046/8076. Below that, there is nothing until major support is found at 6627. On a daily closing basis, support is minor at 8410/8419, stronger at 8149/8179, and very strong between 7842 and 7946.

It is evident the buying is overwhelming the bears and even though the index is very overbought, the buying euphoria continues to be seen on dips, preventing any correction from occurring. In addition, the euphoria seems to be focused on perceived future profits and recovery, not on the actual numbers being seen now. With such low prices, compared to what they were 2 years ago, investors seem to be buying without considering the major changes that have occurred in the economy. Changes that will likely prevent companies from getting anywhere near to the profit levels that were being seen before.

Resistance of consequence will again be seen as the DOW gets up close to the 9000 level. Starting at 8829 and up to 9035, resistance picks up strength. It must be mentioned that back in the year 2002, the DOW generated a rally from the bottom of the recession at 7147 up an intra-day high of 9043, a daily closing high of 8931, and a weekly closing high of 8896. It is therefore highly likely the traders will be looking at those same levels this time around from which to take profits and institute short positions. With the DOW closing at 8575, it is possible that a rally of 400-500 points will be seen this coming week.

There is one scenario that must be considered as possible. The biggest rally ever seen, without a correction of consequence, was in 2001. The rally was a total of 2238 points from intra-day low to intra-day high. In addition, after a small correction of 772 points, the index rallied additionally 1144 points to make a total move for the extended rally of 2602 points. It must be noted that after that move happened, the index dropped 3500 points and made a new low (something a few analysts are predicting will happen). In looking at the support/resistance levels seen right now, as well as the same type of euphoria being experienced, that same scenario could be mimicked at this time. A rally of 2238 points (without a correction), from the low at 6470 would take the DOW up to 8708. A correction of 772 points from that high would take the index back down to a strong support level at 7936, and a subsequent rally of 1144 points would take the index back up to 9080. These levels all seem to fit perfectly with the support/resistance levels now being seen.

Based on this scenario, the DOW would make a new high next week by 120 points above Friday's high (up to the 8708 level) and then take a small 2-3 week correction back down to the 8000 level. I may be going overboard comparing this rally to 2001, but there are so many things that seem to fit, almost perfectly, that it would be a mistake not to consider the possibility. In addition, this kind of scenario also fits in well with the mentality often seen among traders (manipulation of emotions). After Friday's strength, everyone will be expecting the DOW to head straight up to 9000. We all know that in this market, when something is clearly expected by everyone, it often doesn't happen.

Possible trading range for the coming week is 8708 to 8347.

NASDAQ Friday Close at 1739

The NASDAQ closed on Friday above the "last" weekly close resistance level at 1721, a level that was the first correction of consequence seen after the strong break of support seen last September, up at the 2200 level. The index pivoted around 1721 all week, and even late on Friday, it was far from sure that a break of resistance would occur. Nonetheless, by the end of the day strong buying came in and generated the higher close.

The NASDAQ continues to have "daily close" resistances of some consequence above, but confirmation next Friday of this breakout of the weekly close chart could help generate further upside.

On a weekly closing basis, resistance is nonexistent until the 50-week MA at 1850 is reached. Above that level there is no weekly close resistance whatsoever until the 100-week MA, as well as previous low close resistance, is found up at 2200. On a daily closing basis, there is decent resistance between 1764 (most recent high daily close) and 1780. Above that level, decent resistance is found at 1844. On a weekly closing basis, there is no support until decent support at 1552 is reached. Below that level support is strong between 1476 and 1500 from a psychological basis as well as an important weekly close at 1476. On a daily closing basis, support is minor at 1700, decent at 16.45, and stronger at 1608. Below that level, resistance is decent at 1562 and strong at 1500.

The NASDAQ was not able to generate a higher daily close on Friday, than the one that was seen on Monday at 1764. As such, unlike the DOW, the NASDAQ still has quite a few clearly defined resistance levels that may limit the upside. The 1770-1780 level is a decent to strong resistance and even if able to overcome it, the index still faces the last strong daily close resistance up at 1844, that also coincides with the 50-week MA. So, even though on a weekly closing basis the last resistance has been broken, the index will not have an easy time going much farther.

Nonetheless, the NASDAQ has been flirting with the 200-day MA all week (presently at 1739) and if the index is able to generate a close above that line, while also closing above 1786, the probabilities of a rally up to the 1850 level will increase strongly.

The NASDAQ will continue to be the index to watch this week as it is the one that is most likely showing the true value of stocks, unlike the other two indexes that are seeing a buying euphoria. It is also important to note that the index has now had 9 weeks in a row of higher weekly closes. The "only" other streak that long, up or down, was back in 1999 when the Dot.com euphoria took the index up over 1500 points in 11 weeks. I certainly do not believe that the NASDAQ has that kind of story behind it now, and therefore it is highly likely that this week the index will begin to correct.

In looking at the weekly chart, it seems that 1786, on an intra-week basis, will be a major pivot point. If the index is able to get above that level it will very likely go up to the 50-week MA up at 1850, or even perhaps up to the major weekly gap the index is showing between 1905 and 1947. Nonetheless, a failure to get above 1786 this week, will increase the probabilities that by next Friday, the index will show a lower close, quite possibly negating this week's breakout of the 1721 weekly close resistance.

I don't believe the index will be successful in getting above this past week's high at 1773. Considering that the DOW might stop at 8708 (a rally of 120 points above Friday's high), it would likely put the NASDAQ up around 1769/1770 at that moment. That, I believe, will be the high for the week. Probable trading range this week is 1769 to 1681.

S&Poors 500 Friday close at 929

The SPX received the main brunt of the buying this week due to the strong rally in the financial sector. The banks were on fire this past week as the results of the stress test were better than many people anticipated they would be. In addition, once the index got above the resistance at 875, there was no resistance of consequence, on the weekly chart, to stop the rally until a previous weekly close resistance of consequence was reached at 931.

Nonetheless, right across the board, most financial stocks reached levels of resistance, which are unlikely to be broken. In addition, the news is now all out and the "buy the anticipation, sell the fact" adage may come into play strongly this coming week.

On a weekly closing basis, resistance is strong at 931 and again at 968. Above that level, only the 50-week MA at 1014 can be found that would act as resistance. On a daily closing basis, strong resistance is found at 934, strong again at 985, and major up at 1008. On an intra-day basis, strong resistance is seen at 943 and again at 955 where the 200-day MA is currently located. On a weekly closing basis, decent support will be found at 872/876. Below that decent support is found at 825 and strong at 800. Major support is down at 683.

It is evident that the SPX has now reached levels of very strong resistance and with all the positive news out, further upside, if any, is likely to be limited. The 200-day MA up at 955 could be reached, on an intra-day basis, but will act as very strong resistance due to the overbought condition that exists. It is highly unlikely that on a weekly closing basis, the index will be able to close higher once again next week due to the strength of the weekly close resistance at 931. In addition, the daily close resistance at 934 is of the same kind of strength.

It is also important to note that many of the financial stocks in the SPX have also reached levels of resistance on their own charts that seem unlikely to generate further upside. With nothing but better-than-anticipated reports having come out during the last 2 weeks, it seems possible that continued good news will be met with shrugs, as well as increased selling as strong profit taking from 9 weeks of unexpected rallies could begin to be seen.

In looking at the chart history of the SPX for the last 20 years, I have to say there has only been one other occasion where the index rallied for 9 weeks without any kind of a pause or correction. On that occasion the index had already tested the lows and established a breakout above a major resistance level. The 9-week rally that happened after the breakout was as a result of an already "established" bull market run. Even then, 9 weeks was the most the index rallied before some kind of correction or pause occurred.

It is my belief that some upward action will be seen on Monday due to the strong close on Friday. Rallies up to at least 935, or even perhaps up to 943 or 955, will be seen. Nonetheless, its unlikely the index will be able to hold on to the rally and therefore a corrective phase might begin before the week is over, generating a lower weekly close next week. Possible trading range for the week is 935 to 874.

For the first time in weeks, all three main indexes seem to be showing the "same" kind of chart outlook, as well as possible upside/downside objectives. This has not been the case recently, as there have been many occasions during the last 9 weeks, where the chart of one index would lean toward the negative while another one lean toward the positive. This complicity of objectives seen this week gives increased credence to the idea that a correction phase is likely to begin, now!

It is probable the buying euphoria seen on Friday will spill over on Monday and generate a short rally to the objectives mentioned above. Nonetheless, there are many reasons to think that a correction could occur this week as all the important news is out. Without that catalyst, maintaining the rate of ascent seen specifically over the past 3 weeks is highly unlikely to continue. If that happens, traders will begin a strong profit-taking binge to lock in profits.

The bulk of earnings reports are now out and the reports now due to come in, over the next few weeks, will not likely be reflecting anymore, the bearish sentiment and conservative guidance that was being felt and given 3 months ago. As such, it is possible that negative surprises will begin to be seen as it is unlikely that things have improved so much as to support many of these higher prices. In addition, the bears seem to have been stepping aside and therefore there seem to be few levels above that will generate further strong buying. It therefore can be anticipated that traders are likely to key on stops that are being placed by the bulls, in order to generate strong action.