DOW Friday close at 8852

For the first time in 5 weeks, the DOW was able to generate a higher weekly close than the previous week and give a signal that perhaps the index is ready to see a corrective phase to the upside. After a week of 700+ daily trading ranges (2 of which were over 1000 points), the DOW on Friday saw a trading range of only 563 points, thus hinting at the probability that the panic-selling phase is starting to wind down.

In addition, the DOW was able to test successfully Friday's 5-year low close at 8451 with a close on Wednesday at 8578 and followed by two subsequence higher daily closes. Such an event is also confirmation that some strong buying interest is seen at these present levels. In addition, the volatility index (VIX) reached a 20-year high on Thursday with a print of 81.17. On Friday, when that index should have been higher due to the expiration of over 80 million options contracts, as well as a very important and contentious weekly close, the index only reached a high of 74.48.

It is likely the market has now found at least a temporary bottom from which a rally to test the resistance levels above will be launched. With a historic drop in the DOW of 3986 points over a period of 9 weeks, it is now likely the sellers will take profits on their existing short positions and look for new levels from which short positions can again be instituted with some degree of confidence. On a weekly closing basis, the closest resistance level of any consequence is up at 10260/10313. Nonetheless, that resistance level must be considered minor in nature. The next resistance level is up at 10607/10628, and even then it is considered to be only of decent strength. Only until the 11,000 level is reached does the resistance get to be strong. On a daily closing basis, there is decent resistance up at 9388 from the high close seen this past week. Nonetheless, above that only the 20-day MA at 9954 is found. Above that there is no recent resistance until 10842 is reached where a previous low close as well as the 50-day MA is found. On a weekly closing basis, support is now decent at 8451 and again at 8236. Major support is found between 7529 and 8018. On a daily closing basis, decent support is found at 8578 and strong down at 8451. On an intra-day basis, there is strong support at 8198 and major at 7887.

On the daily close chart, the low close at 8451 has been tested successfully and therefore a rally to test the resistance up at 9388 should be the next course of action. With the successful re-test of the recent lows, the buyers will now be more willing to step up to buy. Without more negative news or a successful re-test of the high daily close, it is not likely the sellers will be continue to be as aggressive as they were this past week.

The VIX, though, continues to be a cause for concern. As long as it stays at these high numbers (60-80), the threat of further downside will threaten the market. If the VIX is successful in closing below 54.99 (most recent low daily close), it will give the bulls further ammunition with which to buy more aggressively. After Monday's settlement of the option contracts the VIX will likely be a good indicator as to what the market will do the rest of the week.

The DOW this past week had an inside week (lower highs and higher lows). With all the small signs stating that the probabilities of at least a temporary low having been found, it is likely the index will go above last week's high of 9794 this coming week. With a trading range of 1596 points (low was 8198), and considering a possible thrust up to the 10,000 level, you could again see a big trading range between 8400 and 10000 for the week.

It is also probable that Monday being option settlement day, that the index will be under some pressure as many long positions will have to be sold to satisfy the put options. Nonetheless, by Wednesday the index should see some strong buying coming in.

NASDAQ Friday Close at 1711

Like the DOW, the NASDAQ was also able to generate a higher weekly close than last week giving signs that the index is likely to have a corrective phase as well. Nonetheless, on the daily chart, the NASDAQ continues to be the weak sister of the three indexes, as this past week it closed below last week's low close at 1645 with a close on Wednesday at 1628. It continues to be evident that rallies in the indexes will be lead by blue-chip companies that have a better chance to withstand the rigors of recession and tight credit that will be around for the next few quarters.

The NASDAQ did have a successful re-test of the intra-day low at 1542 with a drop this week to 1566. In addition, the index does show failure-to-follow-through action when the stock closed on Wednesday below Friday's close but then reversed the break with two subsequent closes above Friday's close. Such action should support the index for a rally up to the gap area at 1905.

On a weekly closing basis, there is no resistance of consequence until the 2025-2059 level is reached. On a daily closing basis, though, there is good resistance up at 1844. Above that level there is no resistance until a minor one is found at 20.92. Major resistance on the daily closing chart is between 2150 and 2200. On an intra-day basis, the resistance is quite strong at 1905 from the 20-day MA as well as the gap area between 1947 and 1905. Above 1905, there is no resistance of consequence on the intra-day chart until the 50-day MA at 2157 is reached.

It is very evident on the NASDAQ chart that the 1905 level is a major pivot point. The resistance at that level is strong with a previous high at 1897, the gap at 1905, and the 20-day MA at 1905 as well. Nonetheless, based on the action this week, as well as on the failure-to-follow-though signal given, that a rally up to that level is highly likely.

Drops down to 1600/1628 are not only possible but likely as well. With a close on Friday at 1711, closer to the lows than to the highs of the day, it seems that there could be some early week pressure coming into the index. Nonetheless, by Wednesday, it is likely that a rally will occur and attempts up to the 1905 level will occur. Possible trading range for the NASDAQ this coming week is 1628 to 1885.

S&Poors 500 Friday close at 940

Like with all the other indexes, the SPX was also able to close higher this week than last week, giving a signal that the downside may be at least temporarily over. Like the DOW, the SPX also showed a successful re-test of the previous daily closing low at 899 with a close on Wednesday at 907, thus giving the index a rally probability for the coming week. It is also interesting to note that the SPX was able to do this without any special help from the finance sector as that sector still was under strong pressure this past week.

The SPX, unlike the other indexes, does have some important chart parameters from 2002 that are currently very much in play and from which clear chart outlooks can be mapped. This SPX, then, continues to be the key on the charts as to what the indexes are likely to do.

On the weekly closing charts, resistance is decent at 940 (Friday's close) from highs made in 2002 after the index dropped down to the 765-777 level. Above 940 there is no resistance of consequence on the weekly chart until 975-980 is reached, and even then that resistance is considered minor. Major resistance is found between 1139 and 1165. On the daily closing chart, resistance is decent up at 1003 and then nothing of consequence until 1166 is reached (previous minor high close as well as 50-day MA). On a weekly closing basis, support is decent at 907, strong at 899, and major between 800 and 847. On an intra-day basis, support is decent at the recent low of 840 and then major between 768 and 788.

It is interesting to note that the close on Friday was exactly at 940. On a weekly closing basis, that is an important resistance to the SPX as it was a high weekly close that lasted for almost a year between July 2002 and June 2003. Unfortunately weekly closes are only seen on Friday's and intra-week highs and lows are a non-event for the weekly closing chart. This means we will have to wait until next Friday to determine with any degree of certainty whether the indexes are going to have a correction upwards from this price or not. If not, it is likely that further downside will be seen shortly.

For the time being, though, the chart does show a bottoming out pattern with a successful re-test of the lows on the daily chart as well as at least a pause to the downside on the weekly charts with the higher weekly close. It is likely that this week there will some weakness at the beginning of the week but if the 907 level, on a daily closing basis, is able to hold up, rallies up to the 1003 level will likely be seen before the end of the week. A close above 1003 will be a strong positive for further upside.

Nonetheless, this is the index to follow for clues as to what the next few weeks will bring. A green or red close next Friday, above or below this week's close, will likely be a strong signal as to what the indexes will be doing for the next few months.

It seems probable that a temporary bottom has been found and that a corrective phase is beginning. Both the DOW and the SPX have shown successful re-tests of their respective lows on the daily chart and seem primed for some upside movement over the next few weeks and/or months. October has generally been the month from which a rally lasting through the end of the year has begun, and there seems to be no reason to think this year will be any different.

Nonetheless, the fundamental situation is unlike anything ever seen before and much is yet to be uncovered regarding the extent of the problem. It is evident that the economy is now officially in a recession and there are many economists that are saying the economy may be heading toward a depression. If that is the case, further downside is possible. With earnings season in full swing, there will be quite a bit of information coming out this week that could tip the scales in one direction or another.

It is also evident, from a chart point of view, that this week is pivotal as the indexes have now paused long enough to get rid of some of the oversold condition and that if the selling pressure seen over the past week continues, that new lows could be made. It can be argued that this week's up move was in effect a small correction and that the market is ready for more downside. The key on the charts is the SPX as it is the one index that closed on Friday at an important level from the last recession in 2002 at 940. A higher or lower close next Friday will be highly indicative of whether the index is heading up to the 1100 area or down to the 768 level over the next few weeks.