DOW Friday close at 8497

The DOW broke below its recent previous low and resumed its downtrend this week by making new 6-year daily and weekly closing lows. The small correction phase that was in effect for the last 5 weeks is now officially over and further downside is again possible. The classic reversal day seen a week ago last Thursday was negated and that simply means that there is little interest in buying at this particular time. Nonetheless, the street already knows most of the negative news and further downside should be labored.

On a positive note, the DOW on Friday traded below the lowest weekly close in the last 11 years at 7528 (low on Friday was 7449), but was unable to generate a close below that level. The index rallied to close above an important weekly close made in July02 at 8019, in addition, the index closed above the two most recent intra-day lows at 7887 and 7965. Such a rally could be pointing to a short-covering rally this week, as the index is heavily oversold.

It is important to note that during the last recession back in 2001-2003, the DOW traded in a range between 7197 and 9077 for a period of 9 months. During that period of time the downtrend continued as a new weekly closing low at 7528 was made just 8 weeks after the 8019 weekly closing low was generated. Nonetheless, in the interim a rally up to the 9077 level (8873 on a weekly closing basis) was seen. Over that 9-month period of time there were two peaks and two valleys with 7528, and 7740 making the weekly closing lows of the valleys and 8873 and 8896 of the peaks.

On a weekly closing basis, there is no support below 8019 until 7528 is seen. Below that level you have to go back to 1997 and a weekly closing low at 7442 that was considered important at the time. On a daily closing basis, only Thursday's close at 7552 is seen as support. On a weekly closing basis, resistance is minor at 8379 and 8451, stronger resistance at 8852 and very strong at 9325. On a daily closing basis, minor resistance will be seen at 8176, a bit stronger at 8425, and strong at 8835.

It is evident that the buying interest at this time is minimal and that only short-covering rallies are likely. Confidence has been totally lost by the bull traders in the market as previous chart and technical buy signals have been negated within days of their generation. Nonetheless, the downside is also limited as many stocks are reaching very low PE ratios and the change of government that is due to happen in a few months is bringing some hope as well as scattered buying to the market.

Though rallies, such as the one seen on Friday, are possible and even probable due to the oversold condition, It is likely that selling pressure will continue to be present and that rallies will be short-lived. Nonetheless, as the new president comes closer to taking office, the market will be more sensitive to positive news than negative news and more apt to generate a fast strong rally than a fast strong drop in price. Volatility and intra-day price fluctuations will likely continue to be high.

Possible trading range for the coming week will be 7552 to 8625.

NASDAQ Friday Close at 1384

The NASDAQ failed to generate any follow through on the "key" reversal it had a week ago on Thursday and immediately followed it up by making new 5-year lows. Such a failure was highly disappointing to the bulls as the index knifed through a strong support level from 2001 at 1387 and proceeded to drop down near the support levels from 2003 at 1253 (1282 on a weekly closing basis) with a drop down to 1295.

It is important to note that the NASDAQ is the only index that has not yet reached, or gotten near, to its 2002 lows. Nonetheless, it continues to be the weak sister among the 3 indexes as it is has dropped 55% in value from its highs, whereas the SPX has dropped 53% and the DOW 48%. It is evident that emerging markets continue to take the brunt of the selling.

On the weekly closing chart, minor support is found at 1282 and then very strong at 1140. On a daily closing basis, there is no support other than Thursday's closing low at 1316. On a weekly closing basis, resistance is non-existent until the most recent low close at 1552 (minor). Strong resistance is found at 1772. On an intra-day basis, there is very decent resistance at 1500.

Based on the close on Friday at the highs of the day, it is likely there will be some follow through to the upside on Monday. With absolutely no resistance found until the 1500 level is reached, it is possible that on Monday and Tuesday of this week a rally up to that level will be seen. The 20-day MA is currently up at 1575 and at this time it is unlikely this index will be able to get above that line without some positive fundamental news. Nonetheless, last week's high was 1527 and any move above that level would erase the recent break of previous support and likely generate additional upside rallies.

Possible trading range for the week is 1282 to 1527.

S&Poors 500 Friday close at 800

The SPX failed to follow through on the "key" reversal seen a week ago Thursday and the disappointment generated new 11-year lows breaking below the intra-week support at 767 built during the last recession in 2001-2003. The index got down within 8 ticks of the intra-week low seen back in 1997 at 733. Nonetheless, on Friday the index was able to generate a rally to close at the same major weekly close seen in 2002 at 800 giving the index the possibility that if it closes higher next week, that a major double bottom, using two separate recessions, will be made.

The rally at the end of the day and close at 800 came as a surprise because the index had showed no ability to rally all week and on Friday, one hour before the close, the index was trading near the days and week's lows at 741. The rally was attributed to the announcement that Obama had chosen Tim Geithner as his choice for the new Fed Chief. Nonetheless, it is evident that the indexes were waiting for "any" excuse to generate a rally so that the charts would be able to maintain some decorum of positiveness.

On a weekly closing basis, major support is at 800. Below that there is some minor support at 737. On a daily closing basis, only Thursday's close at 752 is seen as support. On a weekly closing basis, there is some minor resistance from a previous low close at 876. Decent resistance is found at 940 and strong resistance at 968. On an intra-day basis, decent resistance will be found at 840 and then stronger at the 20-day MA at 895.

Without a doubt, the SPX will be the index to watch this week for clues as to what the indexes will do. Further downside in the SPX, below Friday's low at 741 and/or below 1997's low of 733, will be extremely negative. Such a break would likely generate a total collapse of confidence. In addition, next week's weekly close on Friday will likely be the most important close in this index for the last 11 years, as the 800 level will now be considered a major pivot point of great consequence.

With C dropping down to 16-year lows at $3, GS trading at "all-time lows" at $47, and JPM breaking under $20 and at 6-year lows, it is evident that any further downside in this industry could generate a systemic collapse. It is therefore here, in the financial community, that that a recovery must start before the rest of the market follows. Watching how the SPX trades this week, will be the key to all the indexes.

Probable trading range for the week is 768 to 897.

The indexes broke down below recent lows and reached levels of importance that go back, in some cases, 11 years. Oil and commodity prices have retreated to levels that a few months ago were unthinkable, in the last 3 weeks alone over $2.6 trillion has been lost in the stock market, and consumer confidence is at 50-year lows. In addition, the Fed, as well as World powers, have not yet done anything that has shown itself to be a solution. The outlook is gloomy and no end in sight is yet seen.

Nonetheless, we are now facing a major change in the government of this land and hope always remains eternal. Though change of power will not happen until January 20th, the markets are already so deep into an emotional hole that negative news will not likely have much added impact, whereas any positive news, rumors, or change of perception will.

It is very likely that volatility will remain high during the next few weeks, as rallies will continue to be aggressively sold. Nonetheless, the hope for positive change will also remain high until the new president takes office. It is therefore anticipated that strong drops in price will also likely meet with bargain basement buying, anticipating that things are not likely to get much worse (likely better) than they already are. This market is likely to be a traders market for the next few weeks. Purchases or sales lasting more than a few hours, or at most a few days, are not likely to be profitable. Short-term trading is the likely way to go.