The DOW broke below the previous intra-day low at 11635 and got down as low as 11298. In addition, considering that the all-time high daily close last year was 14165 and that the close this past Friday was 11347, the DOW closed just a fraction above the 20% drop that is “officially” considered a bear market (closed at 19.89%). On an intra-day basis, though, that bear market can now be said to be in effect as the index has dropped 20.5% from the intra-day high made at 14198 to the intra-day low of 11298.

Nonetheless, the DOW was able to generate a mini rally late in the day and since the index is in such an oversold condition, it is possible that a small rally will occur before further downside is seen.

Resistance is now going to be very strong at 11670 (11643 on a daily closing basis). That was a high daily close seen on May 10th 2006 before a drop down to 10706 was seen (10699 intra-day). Other than that area, there is no resistance of consequence near-by. Support is minor at 11300, a little stronger as well as psychological down at 10970-11040, and very strong down at 10700.

With the oversold condition, it is possible the DOW will attempt some short-lived short-covering rally on Monday or Tuesday. A test of the resistance is possible, as sellers probably want to see where the resistance actually is before continuing to sell aggressively. Nonetheless, the index has broken down and the buyers are not only on the defensive but mainly running for the hills and therefore rallies will probably be the exception and not the rule. Selling rallies is what most traders are stating they will be doing.

If there is going to be a rally this week, it will probably occur either Monday or Tuesday as the index did show a bit of resiliency on Friday. Nonetheless, based on the weekly bar chart, the probabilities of the DOW reaching down to the 11000-11040 level this week is strong. Based on last week’s range, possible trading range for the week could be 11670-11040.

NASDAQ Friday Close at 2316

The NASDAQ broke down below the important support at 2373 this week and closed both the runaway and breakaway gaps at 2348 and at 2291 respectively. Nonetheless, once the index reached the 200-week MA at 2293 and after closing the breakaway gap at 2291, the index managed to rally 30 points from the low. If there is a early week rally in the indexes it will probably be generated by the NASDAQ as it is the only index that has been able to maintain itself above several important support levels and is still the index that will bring in some buying. Nonetheless, the fact the NASDAQ continues to outperform the DOW and the SPX likely means the indexes are still heading much lower.

The NASDAQ did leave a gap between 2376 and 2366 this past week and if there is a rally in the early part of the week, the index will likely try to close that gap. Nonetheless, this week’s gap could be considered the runaway gap in the chart as back in January 4th the index left a gap open between 2592 and 2571 and that gap might be considered the breakaway gap. When the fundamental picture is considered, such a formation fits in well with the news and would be a powerful chart formation that would not likely be reversed for months and/or years.

Resistance is strong between 2352 and 2364, as there are 6 prior intra-day highs and lows at that level. In addition, and probably more importantly, the 20-week and 100-day MA’s are both at that level as well making that whole area very strong resistance. Even if the gap is closed, there is major resistance at 2376 as that was a major high back in 2006 from which the index took a drop down to the 2000 level over the next few weeks thereafter. Support must be considered strong at 2290-2293, as that is where the 200-week MA is located as well as a previous daily and weekly close of some consequence. Using the daily closing chart, support is decent between 2261-2279, as there were 4 previous daily closes (2 highs and 2 lows) in that area over the past few months. Below that there is no daily support until the 2166-2177 levels are reached (2205-2212 on a weekly closing basis).

With the NASDAQ still being the index were the buyers are still showing some interest, this chart continues to be the one to follow. Nonetheless, should the index start breaking below the 2290 level things could get dicey. Back in 2001 the index broke below the 200-week MA but reversed itself almost immediately and rallied substantially above the line for the next 2 months, only to break that line a second time and generate a move down of 900 points within the next two months thereafter. The same picture seems to be repeating as the NASDAQ broke below the 200-week MA back in March but immediately reversed itself and generated a substantial move up thereafter. If the 200-week MA is broken again, it is possible that a like move could be seen this time as well.

I do believe the NASDAQ is the chart to watch closely this week with 2364/2376 on the upside and 2290 on the downside being “clearly defined” levels that will show what this index is likely to do. A rally upward toward resistance is likely to be the course of action at the beginning of the week. With no fundamental news of consequence due out this week, the traders will probably try to take advantage of the weak shorts that entered the market this past week. Nonetheless, if the resistance levels hold up, the sellers will likely get aggressive again and take the index back down and break the 200-week MA at the end of the week. Based on last week’s range, possible trading range this week could be 2364-2230.

S&Poors 500 Friday close at 1278

The SPX, like the DOW, broke below the 200-week MA and made a new 21-month weekly closing low. The index was able to maintain itself above the previous intra-week low at 1270 and 1257 as well as above the previous daily closing lows at 1273 and 1277 but on the weekly chart the index now looks to be on a break of support. Confirmation next week with another close below 1288 is needed in order to generate further downside.
<p</pSPX is widely followed among big traders as a chart leader and therefore this coming week will be very important for the long-term evaluation of the indexes.

Resistance will now be very strong between 1311 and 1318. The 200-week MA is currently at 1318 and the 1311 level is the last important daily low close support, which was broken this week. Minor resistance should be found at 1288/1289, as that was Friday’s high as well as the weekly close that was broken. Support will be strong between 1257-1270 on an intra-day basis but at 1273 on a daily closing basis. Below that there is no support 1219-1225 intra-day is seen (1237 on a daily closing basis).

Based on the close on Friday right at the middle of the trading range as well as the late rally, it is likely that on Monday and Tuesday the index will attempt a short-covering rally and perhaps a re-test of the 200-week MA that was broken. Nonetheless, the level from which the SPX broke down on Friday was 1304 and if the index is unable to get any higher than that, the selling will reappear in droves.

Possible trading range for the SPX this coming week 1304-1236.

Due to the small bounce on Friday it is possible that a small rally at the beginning of the week will occur. Nonetheless, it is also possible that the indexes will drop that additional 5% at the beginning of the week and then stage an attempt to rally toward the latter part of the week. Either way, it seems that the indexes will see lower prices this week. Holding or not above last week’s lows on Monday will determine which of the two scenarios will occur.

Since the indexes are now back in a downtrend, rallies will be sold aggressively until such a time that the fundamentals start getting better. At this time there does not seem to be any catalyst that will generate a rally of consequence.