DOW Friday close at 8451

The DOW sustained the biggest weekly drop ever by falling 2440 points this past week. In addition, the volatility index was the highest seen since the 24% one day drop in price of the DOW seen back in 1987. On Friday the index saw a trading range of 1018 points between the high and the low of the day. Such a one-day range has never been seen before.

Fear dominated the trading this past week as the threat of a systemic failure of the world's financial community drove investors to sell their stock holdings indiscriminately of price, simply wanting to liquidate all of their positions in the marketplace. Fear that financial problems will filter down to every company in the world, thus causing sales to plummet, unemployment to rise strongly, credit to become unavailable, and companies to go bankrupt, caused investors to abandon positions and go to cash. In addition, the dreaded word "depression" began to be bandied about by analysts, comparing the situation now to what happened back in 1929.

On a technical basis, on Thursday the DOW broke below a previous support level of some consequence at 9105 causing panic selling not only by scrambling-to-liquidate investors but by large traders as well that knew there was no support on the chart until the 8000 level was reached.

Within the first 30 minutes of trading on Friday, the index had not only gone down to the intra-day support level at 7962 but below it by about 79 points. Nonetheless, the technical buying did come in at that level and was sufficient enough that within a few minutes the index was able to rally back above the 8000 level and create a pause in the early morning panic selling. After a late afternoon attempt to break below the 8000 level once more, the technical buying continued to come in and by the end of the day the index was able to generate a new high on the day, over 1000 points from the low. The index closed out the day above the midway point awaiting news from the G-7 meeting on Sunday.

On a daily and weekly closing basis, support is strong at 8235. Below that you will also find strong support at 8019, at 7740 and lastly at 7528. Below that, there is no support to speak of. On an intra-day basis, support is strong at 7883/7962, and major around the 7500 level with one drop to 7400 having been seen in 1998 and one to 7462 in 2002. On a weekly closing basis, resistance will be strong between 8873 and 8893. On a daily closing basis, resistance will be strong at 8931 and again at 9053. On an intra-day basis, there is some resistance up at 8869-8901 (Friday's high). Stronger resistance will be found between 9043 and 9077. If there is no fundamental disappointment on Sunday from the G-7 meeting, from a purely chart perspective the index did enough to the upside on Friday to give the 8000 level added support importance, thus creating a level from which new buying can occur. In addition, the close above the low weekly close seen back in 2001 at 8236 must be considered a positive. Nonetheless, with the major break in price seen this past week, the lack of confidence created, as well as the continuing fear that the financial problems will be with us for some time, it is not likely the DOW will be staging a strong rally at this time. Unless some positive fundamental change occurs this week from the G-7 meeting, trading between 8000 and 9000 for the next couple of weeks is the most likely scenario.

It is evident that if the index is able to rally and close above the 9105 level any time this month, that this move down not only created a major bottom, but one that will not likely be broken ever again. In addition, a close above 9105 will likely generate a fast move up to 10,000 and possibly above. Nonetheless, closing above the 9105 level will not be easy and will require much more than simply technical buying to accomplish. It will require a concerted effort by all the world's powers to support the financial community to a level where confidence in banking and credit can once again be found.

It is likely then, that the DOW will trade between 8000 and 9000 for the next week or two.

NASDAQ Friday Close at 1650

For the first time since Sep01, the NASDAQ generated a weekly gap this past week from 1947 to 1905. The NASDAQ is the only index where a gap can occur and therefore the one index to watch closely for gap scenarios. The last time it happened (2001), a weekly gap occurred as the index gapped down on Monday from 1670 to 1629 and proceeded to drop to 1387 before closing out the week at 1423. The NASDAQ proceeded to hold above the lows seen that week and 3 weeks later the index went on to close the gap and rally 738 points in the ensuing 3 months. Such a scenario looms like a good possibility this time around if there is no disappointment coming out of the G-7 meeting this week.

Nonetheless, this past week, the NASDAQ did break an important weekly close support level between 1720 and 1757 and left itself dangling with nothing but a very minor support at 1644. From a chart perspective alone, such a scenario could easily generate further selling interest, as there is no major support until the 1387 low from 2001 is reached (1423 on a weekly closing basis).

On a weekly closing basis, there is minor support at 1644 and major support at 1423, and nothing in between. On an intra-day basis, Friday's low at 1542 could be seen as support and then nothing until major support at 1387. On a weekly closing basis, decent resistance will now be found between 1720 and 1757 and then strong up between 2025 and 2059. On an intra-day basis resistance will be decent between 1757 to 1796 and then again at 1936. Strong intra-day resistance will be seen between 2059 and 2092.

The NASDAQ was able to close on Friday in the upper half of its trading range, thus offering hope that a further rally will occur this coming week. Nonetheless, the index will be dependent totally on what the other indexes do as there are no previous and important levels of support close-by at this time. Due to the gap seen on Monday as well as the dramatic drop in price see throughout the week, the chart shows no recent resistance until the gap area is reached at 1905. The resistances mentioned above are from 2001 through 2004 and may not be used by the traders if the index starts to rally.

Based on its chart alone, though, the likelihood of a drop down to the 1387 is high, as there are no levels of support in-between where strong technical buying will occur. Nonetheless, the 1357 to 1387 level is considered major support and likely to generate strong buying should the index get down that low.

S&Poors 500 Friday close at 899

The SPX had the biggest one-week drop ever with a trading range of 200 points from high to low. In addition, the index broke below most of the previous support levels of consequence only to get close to the "last" level of support at 769 that could hold the market up. The SPX represents the one industry (financial) that has been the main culprit for the recent ills in the marketplace, and therefore the one index that must be closely watched for clues as to what will happen next.

The SPX dropped below an important weekly close support at 965 and got as low as 839 before rallying to close in the upper half of the trading range. Nonetheless, the index is getting near the 10 year low at 769 (800 on a weekly closing basis) and if that level breaks it would signal that the market is likely breaking down totally.

On a weekly closing basis, support is decent between 833 and 852 and major down at 800. On an intra-day basis, there are 3 major lows between 769 and 788. Below that there is nothing of consequence. On a weekly closing basis, resistance will now be strong between 927 and 940. Minor resistance up at 998 and major at 1157 to 1174. On a daily closing basis, resistance will now be strong at 923 and again at 950. Intra-day resistance will be strong at 965.

It is evident that the SPX will be the index to watch closely this coming week as it is the one index with clearly defined levels of support and resistance that will signal a defined direction for the next 3 months.

In looking at the weekly and monthly chart for the last 10 years it seems probable that the SPX index is in a long-term trading range between 769 and 1576. With the index getting down to the 839 level this past week, the probabilities of further downside to test the 769-800 level are high. Nonetheless with the late rally on Friday, if there are no new negatives on Monday, it is probable that an inside trading week will occur with lower highs and higher lows than last week.

News from the G-7 meeting was somewhat positive on Sunday and the indexes were all trading higher as of this writing. Nonetheless, unless more defined statements with guidelines are made public as to how the problem will be addressed, it is impossible to gauge the overall reaction the market will have this coming week.

It is evident that the indexes are reaching levels of long-term consequence where breaks of support would be damaging to the nth degree. By the same token, the amount of knowledge regarding possible solutions to the financial problems is greater than it was back in the depression of 1929. It is therefore more likely that solutions will be found than not. It is evident that this coming week will be pivotal for the short-term and the following month pivotal for the long-term.

The trading ranges of the indexes this past week will give clearly defined parameters (support/resistance) where breaks in either direction will likely generate follow through of consequence.