DOW Friday close at 7365

The DOW closed on Friday on a new 12-year weekly closing low when it closed below the low close at 7528 made in Oct02 and the weekly low close at 7442 made in Oct97. The November weekly low close at 7552 was broken as well. The only 6 year low close it did not break was the 7286 daily close close make in Oct02. The index is now facing possible intra-day drops to the Oct02 low of 7182 or the Oct97 low of 6936. The index continues to be the leader on the way down and had Friday not been options expiration day, it is possible that the drop in price could have been worse.

The index did try to generate a late rally on Friday and was successful in making a new high for the day. Nonetheless, into the close the index sold off and ended up closing in new 12-year weekly closing lows and in the middle of the day's range. Such action decreases the possibility that a spike low was made.

On a weekly closing basis, there is no support until 6391 is reached and even then that support is decent at best. On a daily closing basis, there is a 12-year support at 7161 but below that only the psychological support at 7000 is found. Intra-day, there is decent support at 6936. On a weekly closing basis, resistance will now be strong at 8001, from both a previous low close as well a psychological, and stronger at 8281, from the most recent high weekly close. On a daily closing basis, minor resistance will be seen at 7552 (previous low daily close), minor again at 7933, stronger at 8000 from a psychological basis, and strong at 8281.

The action seen in the DOW this past week was all down, with no higher highs than the previous day occurring. Having broken all supports, the buyers will be reluctant to purchase the index until some positive fundamental news comes out or a psychological support area like 7000 comes into play. The supports underneath the index are at best minor to decent and none can be counted on to offer the kind of support that the bulls can depend on. As such, it is difficult to come up with levels where purchases can be attempted.

Nonetheless, there is one important note to mention. The monthly close will occur next Friday and on that chart the 7500 level is important support. The 7500 level, on the monthly close chart, has been major support since the very first time it closed above it in 1997. Since then, the index has closed at 7500 on 3 previous occasions (7442 in 1997, 7538 in 1998, and at 7592 in 2002). As such, it is possible that the DOW could show weakness during the week but attempt a rally up to the 7500 level next Friday. A monthly close below 7500 would be seen very negatively as a "long-term" break of support.

For that reason alone, it is very important to keep a close eye on the index for any kind of a sign that strong buying is coming in. Such strong buying is now unexpected and therefore of great consequence should it be seen. Short-covering rallies are probable as the index is now in an oversold condition. Nonetheless, the rallies should be short in nature and without much consequence to the upside.

During this week, it is likely that attention will be shifted toward the NASDAQ and/or the SPX as neither of these two indexes have yet made new multi-year lows. Until confirmation is seen, at least in the SPX, it is also unlikely that the traders will get very aggressive with the DOW to the downside.

It is likely, though, that follow through to the downside will be seen as the break of support just occurred this past week. Without any fundamental news, the break of support alone should generate further selling. Drops down to at least the 6900-7000 level should be seen. Possible trading range for the week is 7500 to 6914.

NASDAQ Friday Close at 1441

The NASDAQ continues to outperform all the other indexes as the general market has been much more resilient than the blue-chip or financial sectors. The index is nowhere near its previous November lows and in fact, on Friday the index was able to hold itself above 1441, a level of support that is of some importance on the daily closing chart. Nonetheless, the index did close below another important support on the weekly chart at 1476 and is now likely to feel further selling pressure this coming week.

The NASDAQ has not yet seen a re-test of the lows and a drop down to at least the 1400 level is highly likely. With the index having an open gap between 1384 and 1397, it is also likely that gap will be a magnet this week.

On a weekly closing basis, support is major at 1384. On a daily closing basis, support is strong at 1441, decent at 1398, and major at 1316. On a weekly closing basis, resistance is now minor at 1476 (from the previous low close it broke) and very strong at 1592 from the most recent high weekly close as well as from the 20-week MA. On a daily closing basis, strong psychological resistance will be found at 1500. Above that level decent resistance will be seen between 1538 and 1558. Strong resistance will be seen at 1592 from the most important recent high daily close as well as from the 100-day MA.

Though the NASDAQ was able to generate a close at a previous support of consequence at 1441, the selling pressure on the other indexes will likely cause the stock to break that daily close support sometime this week. If that happens, the index is likely to drop down to the 1398/1400 level. There is a gap between 1384 and 1397 that will likely garner lots of attention. If closed, drops down to the 1300 level and the 1297 November low become possible. It is important to note that the NASDAQ did gap down on Tuesday between 1530 and 1493 and such a gap might be considered a runaway gap, especially when such strong follow through to the gap opening has been seen. With no supportive news expected, the negative chart action will likely keep the index under selling pressure this week. Attempts to close the gap below are highly likely.

Like with the DOW, the NASDAQ also has a very important monthly closing level between 1499 and 1479 that will likely be in play on Friday. In 1998, 1499 was a major monthly closing low, in 2001, 1499 was an important monthly closing low that kept the index up for 9 months, and in 2002, 1479 was an important monthly high close that kept the index under selling pressure for 6 months. It is evident that the 1479-1499 level is a long-term major pivot point. If the index is unable to rally at the end of the week and close anywhere near the levels mentioned above, it likely means that the index is heading lower and that it will stay down for at least a few more months.

Now that the options expiration week is over, if there is no news of consequence on Monday, further selling is probable. Drops down to test the gap area below are highly likely. If the gap area is not closed, a late rally back up toward the 1479-1499 will likely occur, making it a reversal week and giving the index a possible buy signal. Nonetheless, if the index closes the gap and continues to drop, a rally late in the week would be unlikely. A close next Friday (monthly close) below 1479 would be strongly bearish for the short-term, likely generating further downside of consequence.

Possible trading range for the week is 1454-1384.

S&Poors 500 Friday close at 770

The SPX broke a double bottom of consequence on the weekly chart when it closed below 800. The index was unable to generate even an attempt at the 800 level on Friday. As such, the index finds itself at price levels that show no previous weekly close support of any consequence. With so much fundamental pressure being brought to bear on the financial industry, and with so few possible solutions available, it is likely that the index will continue to go lower until some credible solution is found by the new administration.

Without a shadow of a doubt, the SPX is the main key to what the indexes do from here. Without a recovery in the banking industry, there is no way of getting buyers to step up and buy stocks with any great assurance.

On a weekly closing basis, there is some very minor support at 757 and then nothing until another minor support at 639 is reached. On a daily closing basis, support is major at 752. On a weekly closing basis, resistance is minor at 805 from a previous low close and decent at 839 from the most recent high daily close. Strong resistance is now up at 869 from the most recent important high daily close.

Though the double bottom on the weekly chart has now been broken (not yet confirmed, though) the next support of consequence in play is down at 752 on the daily closing chart (741 intra-day). In addition, going back to 1997, there is minor support at 757 on the weekly closing chart. It is evident that level will be the main topic of attention this week in the index. A daily close below 752 will be considered very negative and likely generate much further selling pressure. With no support of consequence below that level, the index will be at risk of a strong down move, as there is no level where chartists or technical traders would even consider buying against. The index would then have to depend entirely on the fundamental picture changing.

It is also important to note that the SPX does not have the kind of support on the monthly chart as the other two indexes have. The SPX only shows one monthly close of consequence at 815 during all the years it has been trading. With the index now trading at 770 and the inability of the index to rally up to 800 on Friday, it is difficult to imagine that enough buying will be seen this week to generate a monthly close at 815 or higher. Nonetheless Geithner will be announcing details of the financial aid package on Monday or Tuesday. If there is enough "meat" to the package to convince investors that a turnaround is possible, then positive things could occur.

Nonetheless, on a purely chart oriented basis, the break below 800 this week, will likely bring much lower prices over the next few weeks and/or months. Possible trading range for the week is 800-742.

It is evident that this week, because of the monthly close as well as importance of the price levels being seen, is likely to be a pivotal week for the near future. A few weeks ago I did a study on the possibility of a 3-step bottoming out process and it is possible that this move right now is the 2nd step in the process. As such, a major low would either be seen this week or at worst next week. Nonetheless, the monthly chart requires that the indexes rally this week on Friday to close at the levels mentioned above. Such a requirement is a big "monkey wrench" that threatens that scenario. If the indexes end up breaking the monthly support levels mentioned above, the situation in the market could mean a longer term downtrend is in place.

It is also likely that based on what happened last week as well as on Friday, that more selling pressure will be seen, at least for the first part of the week. There are certain price levels in all the indexes that are magnets and likely will be reached, no matter what the indexes intend to do at the end of the week. As such, further downside is expected for at least Monday and Tuesday.

The DOW has no previous levels of consequence to watch out for, but the NASDAQ does have several support levels of consequence left and the SPX does have one. As such, those two indexes will be the ones to watch for clues as to how the week will end.