NASDAQ COMMENTARY

Last week's close of 2135.56 was the lowest of the week for the NASDAQ Composite, and the lowest in over a month, for that matter. The 21 point drop pulled the index lower by about a full percentage point, and it's poised for even further declines.

But in the meantime, the pesky 50 day line (purple) is still keeping this index afloat. It was support on Thursday, and practically support on Friday. It wouldn't be surprising to see the NASDAQ bounce from this lark on Monday, which already has the advantage of being the most bullish day (on average) of the week. Add in the fact that we're also stochastically oversold, a break for the sellers wouldn't be a surprise.

The question is, however, whether or not the 10 day line (red) can hold as resistance. It's well under the 20 day line (blue), signaling that the short-term trend has indeed turned south. But there really hasn't been a good test of the 10 day average yet. It's at 2153, so we'll set short-term resistance there. That leaves nearly 20 points worth of room for the NASDAQ to gain this week without breaking the bear trend, and when it's all said and done, we still think the bears are going to ultimately win the short-term battle. The downward momentum is just too tough to overcome right now, even though it may take a couple of days to verify that.

NASDAQ CHART - DAILY

S&P 500 COMMENTARY

The S&P 500 lost 10.7 points last week, to close at 1219.71 on Friday. That's a 0.8 percent dip - not as bad as the NASDAQ's but still a bit of a problem. And much more than any of the other indexes, the S&P finds itself between a rock and a hard place.

Although the S&P 500 briefly traded under the 50 day average on Thursday, on a closing basis, it has actually been holding up as a support line. On the other hand, the 10 day line has been a clear resistance point, coming into play on Friday. With the two lines on an intercept course, clearly one of them will have to yield to the index. But, which one?

As with the NASDAQ, we expect stocks to move lower over the course of the next few weeks. The uptrend had been mostly untested since May (even the London bombings didn't shake things up too badly), so there are plenty of profits to be taken........and plenty of profit-takers with itchy trigger fingers. So, the most likely direction we'll head next is still lower, which means the 50 day average at 1219 is likely to be broken as support. But also like the NASDAQ, the 10 and 20 day lines are important resistance. If they're broken later in the week, the bearish expectation is negated.

S&P 500 CHART

DOW JONES INDUSTRIAL AVERAGE COMMENTARY

The Dow's close of 10,559.23 last week was 41 points lower than the prior week's close, leaving the blue-chip index the least affected by last week's selloff. Although the 0.4 percent drop isn't catastrophic in absolute terms, like the other indexes, the Dow's recent chart is far from compelling for any buyers (although the strongest bullish argument could still be made with this chart).

The Dow is the most congested of all the indexes, with the 200 day line at the lowest end of the range and the 20 day line at the high end of the range. The total span of that range is 44 points, or 0.4 percent. In laymen's terms, that not a lot. These last few weeks have seemed very choppy (and they have been), but the net effect was a consolidation period, from which we could see some rather big movement.

We're hesitant to use any moving average as support or resistance levels, since their close proximity means that any or all of them could be breached on a short-term basis, but it would still mean little (or nothing). Rather, we'll back out and just highlight the intermediate-term support at 10,275, and resistance at 10,720.

Like the other indexes, we see more downside potential here too, but don't be surprised to see a little buying relief early in the week. The Dow's losses over the last few weeks have made these stocks appear to be bargains, but we expect the sellers to keep at it in the bigger picture.

DOW JONES INDUSTRIAL AVERAGE CHART

Price Headley is the founder and chief analyst of BigTrends.com.