By Paul Cherney Some caution ahead of the earnings warning season will probably prevent prices from making a strong break higher.
Odds will increase for downside risk in the Nasdaq if the index closes under its 20-day exponential moving average of the close on Monday.
There is a more fundamental factor which might prevent prices from weakening next week: next week is the end of the quarter and quarterly management fees are based on the value of assets under management, marked to the market as of the close of trading on Thursday, Mar. 28 (the last trading day of the quarter), so there is an inspiration among money managers to try to keep prices from falling.
The Nasdaq has immediate resistance in the 1862-1873.32 area. The index has strong resistance in the 1887-1899 area. The resistance in the 1887-1899 area is from intraday charts, but charts based on end-of-day price bars show a band of resistance in the 1901-1960 area with a focus at 1908-1942.
Immediate closing support for the Nasdaq is well-organized in the 1853-1832 area. The index dipped below the 1832 level in Thursday's market and that generated an oversold rebound in prices on Thursday afternoon, but that rebound found no follow-through in Friday's session. Warning: If Nasdaq prices move below the 1825 level again, then additional downside should occur.
If the rebound in the Nasdaq is going to have a chance at additional gains it will have to overcome the well defined resistance in the 1887-1899 area because these are the price levels where the bears have been rewarded for going short, and if they try to go short on a return visit to this area, but the longer term investors step to the plate as buyers, pushing prices above the 1900 level, then the advance could force a panic-driven short-covering scramble by the bears.
The S&P 500 has immediate resistance at 1157-1174; inside this resistance is an important shelf at 1157-1162.
The S&P 500 has a band of intermediate term resistance which runs from 1150-1177 (daily charts). The next layer of resistance is 1190-1206. Cherney is market analyst for Standard & Poor's