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Downhill from Here?

By Paul Cherney I think we are seeing the beginning of a retracement in prices.

Price action on Thursday, Jan. 22, weakened short-term momentum measures based on daily price bars. Longer-term measures remain positive, so I expect that any weakness which could last as many as five or even seven trading days (probably more like three or four trading days) will ultimately find buyers to provide a bounce.

It will be the measures of the market during that expected bounce that might offer insight into whether the prices can power higher again or whether they might spend time meandering sideways, consolidating the past 11 months of gains. Expectations for a short-term retracement in price do not mean that every day is a loser. Downside still appears very limited.

The chart shows good Nasdaq

support at 2,105-2,077, and a close in this area would be a natural stopping point for a retracement (assuming I am correct in my interpretation of short-term momentum measures).

The chart for the S&P 500 shows good support at 1,131-1,115.

Very near the close of trading on Thursday, the 10-day exponential

moving average of the the CBOE volatility index, or VXO -- a measure of implied volatility in OEX options contracts -- was 15.49. I don't think there can be a small retracement in price if the VXO does not move above this level.

The Nasdaq has a layer of support at 2,121-2,105, then 2,101-2,084, 2,089-2,077, then 2,062-2,047.

Immediate intraday

resistance for the Nasdaq is 2,129-2,139. The first layer of broader resistance established in the spring of 2001 is 2,121-2,181; in the past few trading days, the index has developed a well-defined layer of immediate intraday resistance at 2,144-2,150.

The S&P 500 has a layer of immediate support at 1,138-1,133.

Additional supports for the S&P 500 are a stacked staircase beginning at 1,124-1,119.90, 1,118.48-1,113.69, then 1,106-1,100. The broad support is 1,106-1,068 and 1,083-1,053 which makes a focus of support 1,083-1,068. Price support thickens with prints of 1,096 and lower.

Immediate resistance for the S&P 500 is 1,151-1,176. Cherney is chief market analyst for Standard & Poor's

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