By Paul Cherney The NASDAQ market is short-term oversold and due for a bounce either Monday or Tuesday. Normally, I would call for a drop at Monday's open to be followed by short-covering and bargain hunting which lifts the index to gains for the day, and that is still the most likely scenario. But, I am a little concerned about a trading pattern which has evolved during the past few months.
In a bull run, weakness on a Friday used to lead to a drop on Monday's opening and then a recovery with gains for the day, but during the recent (and apparently continuing) bear market in the NASDAQ. Weakness on Fridays simply leads to more weakness on Monday and then the recovery can often be put off until the following day (Tuesday). This could make Monday's intraday Put/Call ratios very important. If the CBOE's Equity Only P/C ratio hits .75 or higher, or the Total Put/Call hits .80 or higher, this would be a good sign that the sellers are capitulating and that an intraday turn-around could be in the works. Any advance though, would only represent a short-covering rally, they typically last one to four trade days, but lately they have been more on the order of one to one and a half trade days.
The NASDAQ ended Friday's session in a test of the focus of support (2502-2458) within broader support which is 2522-2406. In Monday's session, if a panicked jam for the exits unfolds, prints near 2370 could be seen.
- The NASDAQ has immediate resistance 2486-2508 with a focus 2486-2496. The next layer of resistance is 2562-2611 with a focus 2572-2590.
- The S&P 500 is testing a focus of support in the 1322-1311 area. This focus is within a broader area of support which is 1329-1301. If there is a crush for the exits in Monday's session, prints near 1293 could unfold. Immediate S&P 500 resistance is 1332-1339 then MAJOR, brick wall resistance is 1351-1389 with a focus in the 1353-1368 area. Cherney is market analyst for Standard & Poor's