The question will now be asked whether the DOW is in the sideways trend between 12000 and 13100 or whether the weekly downtrend that was in effect from Oct07 to Mar08 is resuming. It is possible that question will be addressed and perhaps answered in the coming week. For now, it must be assumed that the trend is sideways and that the bottom of that sideways trend will be seen shortly.

Based on the initial drop from 13137 down to 12443 (694 points), this most recent drop in the DOW now has an objective of 12033 or lower (12727 rally high last week minus 694 points). With the close on the lows of the day and the week on Friday, strong follow to the downside should be seen at some point this coming week.

On a daily closing basis, there is decent support between 12182 and 12216. Support below that level is quite strong at 11951-11971. Resistance, on a daily closing basis, will now be decent at 12390. Any close above 12400 will be considered short-term positive, as there is no resistance above 12390 until 12550 is seen. If the near-by support at 12182 holds up on Monday, a rally up to the 12390 level is probable.

Nonetheless, with the weak close on Friday it is likely the buyers will not be buying aggressively and therefore further downside will likely be seen for the first part of the week. Drops down below the 12000 level are now probable and though there is little intra-day support until 11732-11757, the probabilities for a daily close below 11950 are small at this time.

The 12182 level, on a daily closing basis, must be considered an important pivot point. A close below 12182 on Monday will likely bring substantial pressure to bear and a drop below 12000. A close on Monday above 12182 could generate a move to the 12390 level first. Possible intra-week trading range could be 12390-11857.

Much of the selling on Friday was probably due to panic liquidation and perhaps an overreaction to the news of oil making new highs in conjunction with the higher unemployment figures not seen for years. Nonetheless, with the strong drop of Friday, if a rally occurs, it will likely be aggressively sold. It is probable that a drop down to 12000 will be seen at some point this week.

For now, one must assume the DOW is in a sideways market and that the bottom of the channel is in view.

NASDAQ Friday Close at 2475

The NASDAQ was definitely the index everyone was watching this past week and it did live up to its billing. The index on Thursday flirted with the previous intra-day high at 2551 and did make a new 5-month daily high close at 2550. Nonetheless, when the index on Friday fell below the previous high daily close at 2334 and traded below the previous weekly high close at 2529, selling appeared in strong quantities. By the end of the day the index had broken and closed below the strong support level at 2480 as well as below both the 25 and 200 day MA’s and gave a strong sell signal based on the failure-to-follow-through action seen.

Certainly the out-performance of the NASDAQ over the DOW in the past 2 weeks had to be considered a negative sign, as over the past few years only when the indexes have been ready to drop has that happened. Now the NASDAQ has also given a strong sell signal and shows an intra-day double top (same as the DOW) it is likely to start leading the way down.

On a daily closing basis, support below 2480 is non-existent until the 2445 level is reached (2430 intra-day). Below 2445, only the 50-day MA at 2425 is seen as support, but with the index having given a sell signal, it is not likely the 50-day MA will offer much support. Below that level there is no support of consequence until the 100-day MA at 2365 is reached. That level is strong as it is also the area where there are several previous highs of consequence.

Keep in mind that the NASDAQ chart has 2 open gaps below and with the strong sell signal given, if the index starts breaking down below 2400, those 2 gaps will become magnets for the bears. The first gap down is at 2348-2362 (runaway gap) and the second is at 2291-2313 (breakaway gap). It is highly likely that if the first gap is closed that the second one will be closed as well.

Based on Friday’s action, it is my belief the NASDAQ will be heading down this coming week and if the support at 2445 does not hold up, that the 2365 level of support will be seen.

One important point to consider, if the NASDAQ continues to outperform the DOW on the upside (not the downside) that likely means the situation is worse than I have mentioned above. When the NASDAQ starts to outperform the DOW on the downside, it is likely that a short-term bottom is close by.

Possible trading range for Monday is 2425-2480. Possible trading range for the week could be 2387-2480.

S&Poors 500 Friday close at 1360

The SPX has often been the chart leader in the past and based on what it did the last 3 weeks, it seems that once again this index will be the one to watch for clues as to what the indexes will do this coming week. For the last 3 weeks the SPX has traded between the 20 and 50 week MA’s, on an intra-week basis, and on a weekly closing basis, it has traded between the 100-week and the 20 week MA’s. On Friday, the index closed down at the 20-week MA and if it trades lower on Monday, it is likely to be heading down to the 200-week MA at 1325.

As it is, the SPX broke below the strong daily and weekly closing support at 1374-1376 and only the 20 week and 100-day MA’s are left before the next level of chart support is found down around 1325.

Resistance will now be decent at the previous lows of consequence at 1374-1376 and much stronger at 1387 where there are two major previous intra-day highs as well as the 50-day MA. On a daily closing basis, the resistance is very strong now at 1380. Presently, other than the MA’s at 1360, there is no support of consequence until the 1324 level is seen. Support at 1324 intra-day is decent but on a daily closing basis it is strong at 1326-1328. Some decent support intra-day is also found at 1313 and on a closing basis support is major at 1311. Intra-day support is also found at 1270.

It is likely that Monday will be very indicative of what to expect from the SPX for the week. A break below 1360 intra-day could generate aggressive selling. If the index opens higher on Monday, rallies up to the 1387 level (1380 on a daily closing basis) are likely. Nonetheless, such a rally would not necessarily get rid of the bearishness of the break on Friday.

I do believe the 1360 level will be an important pivot point for the index and if the index starts lower on Monday, that level will likely become resistance and a further strong drop down to 1324 could be seen within one or two days.

Based on the severity of the break on Friday, I do believe the index will be heading down this week to the 200-week MA currently at 1315. Probable trading range for the week is 1360-1313.

It is also likely that volatility will come back into the indexes and that some rallies will occur, but for the next couple of weeks, and until the marketplace figures out what it all means, it is likely that rallies will be aggressively sold.

It is evident that the strong drop in the indexes on Friday, as well as the close on the lows of the day and the week, should bring additional strong selling on Monday. If that does not occur and the indexes are able to stage a rally (even if it is small), then it increases the likelihood the indexes are in a sideways trading pattern and not resuming the downtrend. The lows of the sideways channel will still likely be reached within the next week or two but those lows should generate strong buying.