DOW Friday close at 11143

After the previous week's positive close the DOW was unable to generate any follow through to the upside due to the inability of the Fed to gain approval of the bailout plan they offered. Nonetheless, the DOW did accomplish some constructive base-building when it was able to successfully re-test the lows as well as close out the week above the important low weekly close at 11099. Such action seems to suggest that unless the bailout plan fails, the index will be heading higher to test the major resistance up at the 11800 level.

The marketplace continues to view a bailout plan as a necessity for "stabilization of the market" and until something gets accomplished the DOW will continue to trade erratically and without any kind of defined direction. It is important to note that at this time, the bailout plan is the "key", as trading seems to be centered on getting the plan accepted and not on anything else.

The financial problems facing the marketplace are the worst seen since the Depression in 1929. The threat of a systemic failure in the financial community overshadows all other concerns and until that is resolved, the market will continue to be traded on fear and little else.

Support on a weekly closing basis continues to be strong at 11099. On a daily closing basis, though, support is now strong at 10825. On a weekly closing basis, resistance is strong at 10422 and major at 11734. On a daily closing basis, resistance is strong and important at 11388 and major at 11782.

It is likely that by Monday there will be some type of resolution regarding the bailout program and that by Wednesday it will be voted on and passed. It seems evident, based on this past week's trading action, that a daily close above 11388 (11483 intra-day) or below 10825 (11754 intra-day) will be strongly indicative of further follow through in that direction.

It is also important to note that even if a bailout package is accepted the economy is still very much in shambles and therefore any follow through to the upside may be limited in scope. By the same token, if a bailout package is accepted it likely means a period of stabilization where the lows are set and the marketplace begins a slow upward trend anticipating a recovery next year.

It will all be decided this coming week!

NASDAQ Friday Close at 2183

The NASDAQ on Friday closed below all recent weekly closing supports even though the DOW was able to hold itself above its supports. This is likely indicative of a shift of investor interest toward blue chip stocks, which will likely be the main beneficiaries of the bailout program. It is evident that a bailout program is geared toward the large institutions that provide the systemic backbone to the marketplace. It is they who have taken much of the beating over the past few months and who will reap the most benefits from the support of the Fed. It is unlikely that much of the bailout money will trickle down to the smaller type companies as they do not have the kind of importance to the system as the big companies do.

Even though a bailout package would be beneficial to all, the NASDAQ companies will probably lag behind for several months until the program begins to work smoothly and the large companies filter money, business, and support down to the rest of the marketplace.

On a weekly closing basis, there is some decent support between 2175 and 2185 from a couple of major weekly closing highs at that price. Nonetheless, previous highs are never as strong as previous lows. Under that level there is some minor support down at 2065 and then much stronger at 2020. On a daily closing basis, there is decent support at 2153 and strong support at 2099. Below that, minor support at 2072 and 2047, and major at 2020. On a weekly closing basis, there is some minor resistance at 2274 and then much stronger at 2318 (200-week MA). Above that, there is very strong resistance at 2343. On an intra-day basis, the 2211 level will now be resistance as well as a pivot point.

With the weekly chart breaking support last week, it means the index must show strength this week and close next Friday above 2212 to give a failure-to-follow-through signal. Otherwise, the index will stay under pressure and likely generate a drop down to 2099 to retest the most recent daily low close.

It is evident that the NASDAQ will be depending on what the DOW does to the upside for survival. If the bailout package is accepted and DOW does not rally sufficiently to generate the NASDAQ closing above the 2212 level next Friday, you will likely see the index out-performing all the other indexes to the downside. At this time I do not see the NASDAQ out-performing any of the other indexes to the upside, no matter what happens.

S&Poors 500 Friday close at 1213

The SPX closed out the week in a new 3-year weekly closing low below the previous low of 1236. The break of support came on a week when the financial industry was under pressure due to the largest ever bank failure. This past week, Washington Mutual was taken over by the FDIC and the company was forced to declare bankruptcy. In addition, the SPX also received selling pressure when the economic bailout program offered by the Fed came under strong criticism and failed to be accepted by Congress.

It is evident that at this time only a fundamental change in the financial marketplace will reverse the break of support. As I write, Congress is working on a revised bailout program to help financial institutions get rid of some of their toxic sub-prime mortgage debts. Such a program might help the indexes reverse the break of support seen this past week.

On a weekly closing basis, decent support is found at 1180 and then again at 1143. Below that there is also decent support at 1094/1096 and then major support at 1064. On a daily closing basis, support is decent at 1186 and strong down at 1156. On a weekly closing basis, there should be some resistance up at 1236 and then a bit stronger at 1255. Strong (possibly major) resistance is up at 1298.

Acceptance or approval of Congress for a changed bailout program is needed in order to change the direction of the SPX. As an index that depends much on the financial community, it will be the one showing the way in either direction.

It is important to note that 2 weeks ago the SPX reached an intra-day low of 1136. That intra-day low was right into a strong intra-week support level at that same price that was in existence between Oct04 and Oct05. Having reached that level and bouncing off of it the way the index did likely means the index will only break that level if the bailout package fails. The low seen this past week will work as a successful re-test of the lows if and when a solution to the financial industry crisis is found.

It is highly likely that a major bottom is now in place. News from Washington on Sunday Morning is that the bailout program has been agreed to and that it only needs to be put on paper and approved by both Congress and the Senate to go into effect. The markets are likely to open higher on Monday on that news. Overall, this should be supportive to all the indexes but certain sectors will receive more benefits from the package than others. It is therefore important to note the differences in order to get the most benefit from the rally.

This week, especially on a weekly closing basis, will also be very important as several of the indexes did break their support levels. Keep a close eye on previous weekly closing support levels, as they will act as pivot points this week. All breaks of support always need a 2nd confirmation and that will be the main "key" to trading this week. Also keep in mind that failures-to-follow-through often generate strong and immediate rallies in the opposite direction and that is something both the bulls and bears will be closing monitoring, in order to determine the "real" benefits, or lack thereof, of the bailout program.

I do expect the indexes will react strongly positive to the news. Watch the DOW and the parameters outlined above for specific clues to the reaction this week.