This rally was started when Wells Fargo Bank announced higher earnings than anticipated as well as a raise in dividends. In an industry that has been battered down mercilessly, the unexpectedly surprising news came at a time that the market was on its back and ready to collapse. A big weight has now been lifted and a strong short-covering rally has ensued.

The DOW did get deep into the area of support between 10700 and 11000 as Tuesday’s low was 10828. Nonetheless, this is a strong area of support that was expected to hold, as it had held firm for almost 1 year back in 2005/2006. It is now probable the DOW is in the process of rallying up to the top of that 1-year trading range up at 11670.

Resistance is very strong on a weekly closing basis at 11578, and at 11643 on a daily closing basis. Intra-day the resistance is found at 11670. Additional resistance will be found at the major intra-day low made in March at 11643 (11741 on a daily closing basis). Decent support on a daily closing basis will now be seen at 11375 (20-day MA and two previous closing highs). Some support from back in 2005-2006 is found between 11240 and 11280, though nothing at that price on this recent move. Also on a daily closing basis, minor support is seen at 11216 and 11147. Strong support will be down between 10978 and 11039. Major support continues to be down at 10700.

With the confirmed breakout above the 20-day MA on Friday, as well as a close on the highs of the day, it is likely that the DOW will see upside follow through the first part of the week. Some weakness might be seen in the middle of the week and a likely rally and higher close than this week next Friday. Rallies up to the 11670 over the next week or two are not only possible but, probable. Nonetheless, we are at the beginning of the earnings report quarter and choppy trading continues to be likely. The rally up to the 11670 could take as much as 1-3 weeks to accomplish and the index could trade choppily, but with a slight upward bias. It is expected that for the next week or two the volatility will ease. Nonetheless, it is important to note that the major resistance on a weekly closing basis is 11578 and therefore it is unlikely that the index will close above that level on any Friday.

The probability of the DOW being in a relatively small trading range of 400 points between 11670 and 11240 for the next couple of weeks is high. First of all, the oversold condition needs to be addressed and that won’t happen with a one-week rally. In addition, the earnings reports are likely to keep the market choppy but with an upward bias as some of the more important earnings reports are already out. Probable trading range for the coming week could be 11329 and 11586.

NASDAQ Friday Close at 2282

The NASDAQ took a back seat to the DOW on Friday as it closed in the red versus a green close in the other two indexes. I believe the reason is clear, inasmuch as this index just recently broke below its 200-week MA (currently at 2302) and unlikely to close above that line without the other indexes doing the same. The same 200-week MA in the DOW is at 11690 and in the SPX it is at 1320. Because the other indexes still have a ways to go to reach that MA, but the NASDAQ is close by, it is likely the index will be the laggard during the next couple of weeks.

It is now been stated and clearly defined that the indexes are in a bear market and the 200-week MA must be considered the major pivot point in such a scenario. As such, and during the next couple of weeks while the indexes are shedding some of the oversold condition and enjoying a short-covering rally, it is likely the NASDAQ will under perform and keep itself, on a weekly closing basis, below 2302.

On a daily closing basis, resistance is minor at 2312. Resistance is major, at 2341-2343, and again strong at 2357. Intra-day major resistance is at 2367. On a daily closing basis, support is quite strong at 2276 and again 2259-2261. Some support is found at 2243. Strong and important support down at 2213 and major at 2169. Intra-day support is strong between 2256 and 2266.

Due to the importance of the 200-week MA, it is unlikely that the NASDAQ will be able to generate a strong lasting rally any time during the next two weeks. Nonetheless, tt is possible that if the DOW rallies intra-day to 11670 that the NASDAQ will reach 2347 intra-day. The index, though, may be unable to maintain those rallies on a daily closing basis.

If the DOW closes higher next week as anticipated, it is likely the NASDAQ will also close higher. Nonetheless, it is unlikely that on a weekly closing basis, that the index will close above 2302-2304 at any time.

Trading range for the coming week could be 2266-2312.

S&Poors 500 Friday close at 1260

With this past week’s higher close, the SPX confirmed that the previous weeks’ close at 1239 was a successful re-test of the important weekly closing support at 1236. In looking at the weekly closing chart, it has been shown that for a period of almost a year, back in 2005-2006, the SPX traded between 1236 and 1288 for almost 70% of the time. It is possible that the same scenario could occur once again.

It seems likely that the SPX is now in a short-term corrective phase and that the primary objective is a rally up to 1288. Nonetheless, it is important to note that the SPX is under more pressure than any of the other indexes as many of the stocks in the index are in industries that are fundamentally weak.

Using the daily chart, resistance is decent at 1274, where a recent previous high close as well as the 20-day MA is seen. Resistance is a bit stronger up at 1280 as there are several important daily closes from 2006 at that price. A bit more resistance is found at 1288-1294 and major resistance up at 1326. In using the weekly chart, the resistance at 1270 has the same importance but then the 1288 level becomes much stronger as there were in excess of 3 weekly high closes at that price in 2005/2006. Above 1288 there is no resistance of consequence on the weekly closing chart until 1307. Major resistance is also found at 1326.

The difference between 2005/2006 and now is that in the past the index was in a bull market up-trend and dips were being bought aggressively. Now the index is in a bear-market downtrend and on the defensive and trying to hold on to supports. This fact was illustrated this past week when the index did drop as low as 1200 (strong psychological support) before the index turned around. In 2005/2006 the low was only 1219.

It seems likely that for the next week or two that the SPX will be testing the resistance levels above, while shedding some of the oversold condition. Keeping a close eye on the weekly closes during the next few weeks and comparing them to what they were back in 2005/2006 will help give a clear assessment of how severe this downtrend might be this year. Any weekly close below 1236 will signal further downside while a weekly close above 1288 will help alleviate the severity of the downtrend. Probable range for the week in the SPX is 1225-1277.

During the next few weeks, the brunt of the earnings reports will be seen and therefore surprises on both directions could give the indexes some volatility and could affect chart evaluations. Nonetheless, the possible anticipation that many companies could show that things are not as bad as previously thought, may help the market calm down during this period of time.

It is evident that the strong selling pressure subsided during the latter part of last week and though all strong rallies will still be sold, the next few weeks should be calm, while the marketplace goes through a corrective phase.