DOW Friday close at 8277

It is evident that the DOW has reached an impasse that will likely be resolved this coming week. For the last 3 weeks, the DOW has been unable to determine any kind of a direction as every week the highs and the lows of the week have been basically the same (8210/8230 low and 8565/8592 high). Nonetheless, it must be mentioned that this past week, the DOW did make a new high by a few points and failed to follow through, only to close out the week near the lows of the last 3 weeks. Such action increases the probabilities that supports will be broken unless positive fundamental news comes out.

There was a scarcity of news this past week and with the Memorial Day weekend generating a lack of strong participation (very low volume trading), the index simply "treaded water" and waited for next week when there is more news available.

On a weekly closing basis, decent resistance will now be found at last week's close at 8575. Above that level there is no resistance of consequence until 9035 is reached. On a daily closing basis, resistance is decent at 8504 and very strong at 8575. On a weekly closing basis, support is at 8046/8076. Below that, there is nothing until major support is found at 6627. On a daily closing basis, support is decent at 8269 and then decent to strong support, as well as copious (including the 100-day MA), between 7927 and 8017. Below that level support is minor until the index reached strong support at 7522/7552.

There is little that can be determined with any degree of certainty from the action of the last 3 weeks. Nonetheless, the burden of proof has now shifted from the bears to the bulls as the bulls have been unable to provide the final blow when they've had the bears on their backs, such as what happened last Wednesday. In addition, on that day, the index had a key reversal day making a new 4-month high, a lower low, and a close below the previous days' low. With such action, the DOW will now be under selling pressure and will need some tangible piece of news to re-invigorate buying interest.

Investors are starting to show concern that the U.S. government's ability to fund its massive interventions to prop up the U.S. banking system and stimulate the economy could lead to a downgrade of its credit rating, thus weakening the dollar and increasing its borrowing costs. That is not a worry that is not likely to go away soon and could undermine any attempts to rally the market upward.

With a clearly defined 3-week trading range (8210 low and an 8592 high), it is likely that any break above or below those levels will generate strong reaction and follow through. A break above 8592 would probably generate a move up to the 200-day MA at 8826, while a break below 8210, a move down to the 100-day MA at 7927. With Friday's close near the lows of the range, last week's inability to hold rallies, widely accepted belief that a correction is overdue, and increased worries about the US's credit rating, the probabilities do favor a breakdown.

Likely trading range for the week is 8313 to 7929.

NASDAQ Friday Close at 1692

The NASDAQ is now showing a clearly defined double top formation with two intra-week highs at 1786 and 1773, one in November and one in May. This formation was confirmed this past week when the index was unable to reach the previous high, even though an attempt was made. In addition, the index also generated a successful re-test of the previous daily closing high at 1764 with a closing high this past week at 1732.

The NASDAQ has not yet given a sell signal but the action seems to suggest that such a signal could be given this week. With the burden of proof now back in the hands of the bulls, it seems logical to believe that after 9 weeks of rally and 3 weeks of sideways action, that without some fundamental help, the index will succumb to the selling and corrective pressure now being applied.

On a weekly closing basis, resistance will now be very strong at last week's close at 1739, as well as at 1721. On a daily closing basis, decent resistance will be seen at 1732 and very strong at 1764. On a weekly closing basis, there is very minor support at last week's close at 1680 and then no support until decent support at 1552 is reached. Below that level support is strong at 1500 (psychological) and at 1476 (an important weekly close). On a daily closing basis, support is decent to strong at 1664 from the most recent low close as well as from a previous intra-week high at 1666. Below that there is minor support at 1608 and stronger between 1552 and 1562 from a previous daily low close of some consequence as well as from the 100-day MA.

It is now evident that the index has established clearly defined parameters that are likely to be broken in one direction or another this coming week. A rally and close above 1732 will not only give a small buy signal but also confirm a break above the 200-day MA. By the same token, a close below 1664 will not only break the most recent low daily close but also erase the previous breakout above 1666, thus indicating weakness in the chart. It is important to note that on Tuesday and Wednesday of last week, the NASDAQ traded both days, all-day, above the 200-day MA and on Thursday and Friday the exact opposite was seen. The 200-day MA is currently at 1710 and likely to be a strong pivot point for the week.

Like with the DOW, the NASDAQ is also showing that a break below the most recent low (in the NAZ at 1664) will likely generate a strong and likely fast move down. The objectives of such a break would be the psychological support at 1600 or the weekly close support at 1552. It must be mentioned that the index does have a runaway gap at 1596-1599 and breakaway gap at 1553-1559. Support at the runaway gap will likely be strong, but a closure of the first gap will likely bring about closure of the second.

The charts seem to suggest that the downside is the most probable course of action this coming week. Nonetheless, much will depend on how the economic reports come out this week and how the market evaluates them. Keep a close eye on the 200-day MA at 1710, as that is an important pivot point for the week.

Probable trading range for the week is 1710 down to 1599.

S&Poors 500 Friday close at 887

The SPX was unable to negate the double top that has been built on the weekly closing chart at 929/931. In addition, it can also be said that the intra-week high made 2 weeks ago at 930 was also successfully tested with a rally up to 924 this past week. Like with the DOW, the SPX also shows 3 weeks of clearly defined range trading between 930 and 878 and a break above or below either of those two levels this coming week, will likely generate substantial movement in that direction.

The SPX also had a successful retest of the 929 daily closing high with a close on Monday at 909. That close was particularly indicative as on Tuesday and Wednesday the index traded most of the day above that 909 level but on neither occasion was the index able to close higher. Such action, followed by weakness on Thursday and Friday, seems to suggest the index will be heading lower this coming week.

On a weekly closing basis, resistance is now very strong at 931, as a double top at that level has now been formed. Above that level resistance is non-existent until 968. On a daily closing basis, resistance is decent at 909, decent again at 919, and very strong at 929. On a weekly closing basis, minor support is found at 882, 872, and at 866. Decent to strong support is found at 825, and very strong at 800. Major support is down at 683. On a daily closing basis, decent support is found at 882 and then basically nothing of consequence until minor to decent support is found at 848, 832, and 825.

The SPX generated an intra-day double bottom at 879 this past week but it was not a confirmed double bottom as the index was unable to get above Thursday's high on Friday. As such, not much reliance can be put on the area acting as strong support. The inside day the index had on Friday seems to suggest that further downside will be seen this coming week, unless some economic report suggests otherwise.

With the low for the last 3 weeks at 879 so close by, it is likely that the index will break that level this coming week, perhaps as early as Tuesday. Such a break would cause strong selling pressure to appear and a likely drop down to the 833 level of support.

Thursday's trading range between 900 and 879 seems to be the key for this coming week. A rally above 900 will likely cause one more attempt at the 924-930 highs to be made. Nonetheless, a failure to get above the psychological resistance at 900 will likely bring in strong selling. As such, the chart seems to be clearly defined, at least for the first few trading days of the week. Probabilities lie on the side of the bears winning out.

Possible trading range for the week is 888-847.

During the last 3 weeks topping out action has been seen in the indexes, as the upward momentum has totally waned. The burden on proof is now on the shoulders of the bulls as they have been unable to generate new highs for the rally, even though they have had the bears on their backs several times during this period. With new fears creeping up in the minds of investors, as well as indexes that are overbought and in need of a corrective phase, the probabilities have now shifted toward the downside.

It is evident as well, that with all the indexes closing near the lows of the trading range for the last 3 weeks, some type of positive catalyst (in the form of news and/or reports) is needed to prevent breaking of the support levels nearby. It seems that the bears need not be aggressive to create a break of support, as the buying has diminished in general (lower volume every week). Any break of support, though, will generate a strong round of profit taking as well as increased interest by the bears in taking on new short positions.

This week there are quite a few reports coming out, with GDP (Friday) being the most important. In addition, Home Sales (Wednesday & Thursday) , Durable Goods (Thursday), Consumer Confidence (Tuesday), and Chicago PMI (Friday) will also be given. It is possible, though, that the traders will be attempting to break supports even before the reports come out, with the thought that only much-better-than-anticipated reports could prevent the correction from occurring.