DOW Friday close at 11388

After a record setting week in volume, volatility, and price range, the DOW closed out the week with a loss of only 33 points below last week's close. Nonetheless, the index did travel over a 1017 point range during this week, mostly to the downside, and was on the verge of a major meltdown due to a possible systemic failure in the financial sector. On Thursday, the Fed offered a bail-out plan that will address the lack of confidence in and within financial institutions and ease the concerns of systemic failure. The plan will make available a fund where financial institutions can get rid of their bad mortgage debt, at pre-set pricing levels, that will allow financial institutions to continue to operate without fear of bankruptcy. Such a plan will likely put a floor to any further downside. The plan is being worked on with Congress as I write, and if accepted in any format, will likely mean that a major low has now been set and a period of recovery will begin.

The near-miraculous recovery generated a two-day rally of 1017 points, created by a panic short-covering rally based on a proposed solution to wipe out the debt being carried by financial institutions (in the form of failed mortgages) that threatened a liquidity and confidence breakdown. Such a solution would bring back some kind of normalcy to the market.

The DOW experienced a reversal week on the weekly chart with higher highs and lower lows than the previous. Nonetheless, even though the index closed in the high end of the trading range, it was not able to accomplish a true reversal as the index closed lower than last week's close. Such a close likely indicates that some work still needs to be done to the downside, in the form of re-testing of the lows as well as building of support levels from which further upside can be obtained.

On an intra-week basis, support should now be very strong at 10828 and strong at 11038 and at 11099. On a weekly closing basis, support will be major at 11011 and strong at 11221. On a daily closing basis, support should be strong at 10919, at 10978, and at 11059. In addition, there is also decent support at 11188 and 11216. On a weekly closing basis, resistance will be strong at 11497 and major at 11734. On a daily closing basis, there is minor resistance up at 11434, and again at 11511. Strong resistance will be found up at 11656 and again at 11715. Major resistance is up at 11782 from a major previous high as well as from the 100-day MA.

In looking at performances of the DOW in the past when a major low was found, it seems likely that the index will go above the weeks high at 11481 sometime during this coming week. Rallies as high at 11750 are possible and perhaps even likely. The big question is how low the index may drop down to this coming week before the rally occurs. On a daily closing basis, a drop back down to somewhere between 11188 and/or 11216 (11059-11099 intra-day) will likely be seen the first part of the week. The drop down to that level will also be indicative of just how much strength, or lack thereof, this rally truly has. Should that level hold up on the first couple of days of next week, it is likely that a rally up to the 11600-11700 will not only occur but that the high at 11853 could be threatened. Nonetheless, if that level does not hold up, it is probable drops down to the 10828 level will occur and therefore the rally up to the 11600-11700 would be the max that could be expected next week.

It is evident that now that a bottom seems to be in place, that many investors sitting on the sidelines will now interested in buying into the market. Many stocks are considered cheap at these prices and the bulls on the sidelines are waiting to pounce on them as soon as they are convinced there will be no further downside of consequence coming. Next week is likely to be a week in which dips will be aggressively bought. Nonetheless, depending on the action the first couple of days of the week, the buyers may wait for further signs of support before stepping up.

I have no personal chart thoughts at this moment as this is all based on how the proposed financial support programs will be accepted by Congress, and if revisions will occur. I do believe, though, that it is likely this will be decided in the first couple of days of the week. There should be some selling coming in on Monday and perhaps on Tuesday but if the plan does go through, the rest of the week should be up. It is likely that the upside parameters will be made clear depending on which of the support levels mentioned above hold up.

NASDAQ Friday Close at 2274

The NASDAQ, contrary to the DOW, did have a reversal week with higher highs, lower lows and a close above last week's close at 2261. In addition, the close at 2274 was above a previous daily close resistance of some consequence at 2261 and a minor one at 2270. In essence, the NASDAQ did give a buy signal with Friday's action.

The index did leave a major gap open between 2202 and 2240 but if a bottom has been set, the probabilities of this being a breakaway gap are very strong. Breakaway gaps based on fundamental changes rarely get filled. Back in 2002, when the NASDAQ made a major low at 1108 on a Thursday, the index closed on its highs at 1165 that day and on Friday the index gapped open at 1179 and never looked back thereafter. That Friday, the index closed near the highs at 1220. The following Monday, the index had a low of 1193 and proceeded to rally all week. The similarities are there and if this is a major low, the gap left on Friday will not likely get filled.

On a weekly closing basis, support will now be strong at 2256, again at 2239, and major at 2212. On a daily closing basis, support will be very strong at 2210. Some decent support will also be found between 2235 and 2243. On a weekly closing basis, resistance will be major up at 2414 and decent at Friday's closing price of 2274. On an intra-day basis, resistance is decent up at Friday's high of 2318 from the 50-day MA. Above that level, resistance will also be decent at 2350 and a lot stronger up at 2392 from a previous high as well as from the 200-day MA. On an intra-day basis, support is major at 2200 and strong at 2253-2257.

The big question is whether a major low has been put in place and if the market is ready to start an up-trend. With the gap opening on Friday and clearly defined support levels presently being in place, it will not be difficult to determine just how strong this turnaround really is. It is probable that some weakness will come in either on Monday or Tuesday and a drop back down to at least the 2253-2257 level (20 points down from Friday's close) will occur. Nonetheless, if the index is unable to break below that intra-day support level, strong buying will appear and a big rally could occur. Should the index be able to get down to the major support level at 2200 and close the gap, then the scenario will change and the chart will need to be re-evaluated.

S&Poors 500 Friday close at 1255

The SPX, like the NASDAQ, was able to close above last week's close. Nonetheless, the index was unable to generate a reversal week like the other two indexes did, as it did not go above last week's high. Like with the other indexes, the rally from the lows was impressive and indicative that a major low has been found. Nonetheless, the close on Friday was still within parameters that leaves a few questions unanswered.

It is important to note that the SPX largely represents the financial community and that was the industry most strongly hit this past week as well as the industry that will receive the most benefits from the proposed solution to the financial crisis. It is this index that will most likely show on the chart the viability of the recovery.

On a weekly closing basis, support is major between 1236 and 1242. On a daily closing basis, support is very strong at 1215 (1200 intra-day). Resistance is decent at 1261 and major at 1298. On a daily closing basis, resistance is minor at 1252-1260, from a previous high close resistance as well as from the 50-day MA. Stronger resistance will be found between 1267 and 1273 from several daily low closes of consequence, and major up at 1301-1305 from two major high closes as well as from the 100-day MA.

Like with the other indexes the spike type low seen this week is indicative that a major low has been set. Nonetheless, much of the follow through will depend on the viability of the support program being offered by the Feds. Drops down to the 1200 level will be positive but will put a small damper on the upside range that could be seen this week. I do believe the 1234 (1242 on a daily closing basis) level will be a pivot point this coming week. If there is a drop down to that level but it is able to hold, a strong rally will likely occur the rest of the week with the probability of the 1298 level not only being seen, but perhaps broken.

It will depend on the action seen on Monday and Tuesday, as well as the news that comes out regarding the bail-out program being proposed.

It is highly likely that a major bottom is now in place, nonetheless, trading ranges for the coming week are not clear and will not be clear until more information is made available regarding the financial bail-out program. It is also evident that a lot of money on the sidelines is waiting to come in to purchase stocks that are likely at very low prices due to the financial crisis that has depressed prices.

Keep in mind, though, that inflation, economic slowdown, unemployment, and a likely recession are still in effect and though bailing out the banks will offer some support and confidence building, the problems affecting the entire world have not gone away. It is important to note that just two weeks ago, before the financial tsunami, the indexes were having problems getting above strong resistance levels. The bail-out plan, if accepted, will bring in new support and purchasing stocks maybe "in vogue" for the next few weeks. Nonetheless, it is still evident that making profits under the current market conditions will not be easy, and therefore commons sense should be used.

I do expect that if everything is resolved as proposed that a strong surge of buying will occur that will generate a fast and possibly strong rally. Nonetheless, after that initial surge, reality will once again set in and cause the market to come back to some sense of reality.