Over the past few weeks there have been many instances where news was released, on an uncannily timely basis, to offer fodder to help the bulls case. Nonetheless, when all was said and done, the news was found to be more of a band aid solution than real answers to the problems and the market retreated in a decisive way after being exposed when the market failed to get through its major resistance level at 12743-12767.

Resistance is considered major at 12743-12767 and now the 12573 level (12552 on a closing basis) will likely take on a strong resistance tag. Support is now found at 12155 and then again at 12069, on an intra-day basis, and at 12182 on a daily closing basis. Major support is at 11971 on a daily closing basis and at 11635 on an intra-day basis.

With the DOW closing below the 20-day MA on Friday, below a minor daily closing support at 12284, and on the low of the day and the week, the index is now back under strong selling pressure and further downside is expected to be seen next week. Without any expected fundamental help on the horizon, it is likely the DOW will be on the defensive trying to hold itself above its support levels. Nonetheless, having had a 315-point drop on Friday (in a spike type fashion) it is expected that the 11970-12000 level will be tested next week. Failure to hold itself above that level will likely generate incursions down to test the 11635 intra-day low seen a few weeks ago.

Using the weekly charts, the failure to generate a higher close this week than last week, suggests a failure signal will be given if the stock closes next week below 12099. Such a failure signal opens up the possibility of a drop down to 11740 level. This objective is reached by using an equal measurement of the correction seen a few weeks ago from the weekly low at 12099 to the weekly closing high at 12743 (644 points). That measurement would be added to last week’s closing high at 12384 and would suggest a drop down to 11740.

A week ago I mentioned the possibility that the DOW is in a sideways trading range between 11700 and 12700. A drop down to that level is probable now, based on the action last week.

Upon reaching that level, it will be seen if that is the correct evaluation or whether the downtrend has resumed.

NASDAQ Friday Close at 2271

The NASDAQ ended up the week with a new 17-month weekly closing low and continues to be the weak sister of the three leading indexes. In addition, it is the first index that is nearing the 200-week MA as that line is at 2250-2255. The NASDAQ was not a willing participant this past week in the rallies enjoyed by the other indexes and on the way down was the absolute leader. Even though the index did rally along with others, the NASDAQ was unable to break any previous daily high closes, as the DOW and the SPX were able to do. With Friday’s new 17-month weekly low close, the index shows no previous support of any consequence until the 2073 level is reached.

During the last 10 years, the 200-week MA has only been broken twice. Back in 2001, the break generated a further drop of over 1300 points in a period of 18 months and in August of 2004, the break generated a rally of 1000 points over the next 3 years. With the weakness and new 17-month weekly low shown this week as well as the close being only 20 points away from the line, breaking of the 200-week MA has become a real possibility for the upcoming week.

Resistance is now going to be very strong at 2364 intra-day (2354 on a daily closing basis). Some minor but psychologically strong resistance should be found at 2300-2305. Support is decent between 2250 and 2263, as just recently there have been two intra-day lows at those prices. In addition, back in Jan-Mch06 the 2250 area acted as a strong pivot point for a period of 2 months having repeatedly closed right above or below that same price. Add to that the fact that 2250 is where the 200-week MA currently resides and you can state unequivocally the entire area is an important support level, even though not considered a major as no spike lows or highs have been seen at that price. Should the level not hold up, there is minor support intra-day at 2200 but little else until the 2073 level, on a daily closing basis, is seen.

With the way the NASDAQ has been showing weakness as of late, and the fact the DOW could end up dropping 600 points next week, it seems highly unlikely that the NASDAQ will be able to hold itself above the 2250 level. Nonetheless, it is possible that this coming week the other two indexes will take the leadership to the downside and the NASDAQ simply take on a very passive role and hold itself around this level.

If the NASDAQ does break below the 2250 level convincingly, it could signal that things with the economy are a lot worse than have been or are being predicted, at least as far as the common market is concerned.

I must state, though, that the weekly and daily charts show an inverted flag formation that seems to be in the breaking stage. Using only weekly closing prices, the flag pole would be from 2724 to 2279, the flag area between 2279 and 2413. Should the bottom of the flagpole break (2279), it could signal a move down from the top of the flag at 2413 of 445 points, putting the index down at 2000.

S&Poors 500 Friday close at 1330

The SPX chart is also showed weakness this past week when it failed to get above the previous 1395 rally high, tested the 50-day MA successfully, and sold off to close the week on its lows and only 5 ticks above the 17.month low weekly close.

Though the chart did not break down, as the NASDAQ chart did, the weak close on Friday was below the 20-day MA and also below a previous daily low close at 1343. During the past 5 weeks, the weekly chart has generally shown intra-week strength only to end 3 of the last 5 weeks nears the lows of the week and just slightly above important support. One of the two other weeks the index showed minimal strength with a close at 1353 and only one week, the week it tested the breakdown level at 1387, was the index able to keep any of its strength, that happened 4 weeks ago and was considered a short-covering rally.

Resistance should now be quite strong at 1354-1355 (20-day MA) and a bit stronger at 1368, on an intra-day basis. Nonetheless, with the high on Friday being 1364 and the chart showing a spike low, it is unlikely the index will be able to get up to that level without a reversal type day. Major resistance will now be 1381. On a daily closing basis, support will be found at 1326 and then much stronger at 1311. Strong intra-day support is seen at 1270, and then some at 1317 and 1325.

The SPX weekly chart looks tilted toward a break of support and continuation of the downtrend as the index has not been able to hold on to any of its recent rallies and the support level seems to be getting tested a bit too much. Such action usually means that a break of support is around the corner.

With the strong spike-type weakness seen on Friday, follow-through action is likely to be seen on Monday. With the only support levels of consequence all being within 20 points of Friday’s closing price, it is likely the sellers will be aggressive early in the week and try to push hard to generate a break of support, possibly as soon as Monday.

As it is, downtrends do not generally get turned around without several re-tests of support and the intra-day lows seen 5 weeks ago have yet to be tested even once. It is highly probable that this coming week those intra-day lows will be tested. Whether they hold up or not, will likely be the main question posed this coming week.