By Paul Cherney Here's a synopsis of short-term technical expectations: A selling capitulation on Monday could reverse prices on short-covering and bargain hunting (after a capitulation), but the gains will probably not attract followthrough buying and Friday's lows will probably be undercut.
I would describe the market as ripe for a rebound, but slack attendance on a Monday in the summertime might keep volume at less than capitulation levels (I think even just short-term capitulation volume levels have to be at the least 1.25 times the 50-day moving average of volume, the huge bottoms like the one in July, 2002, produced the highest single-day trading volumes in the history of the NYSE). In this instance, 1.25 times the 50-day moving average of NYSE total trading volume would be 1.67 billion shares, Nasdaq 2.0 billion.
Friday's decline caused 60-minute measures of price momentum to hit levels of negativity that shift the odds to favor that even if there is a rebound in prices that lasts up to two trading days, it is still likely that the Friday will be undercut on subsequent trade days. This kind of reading might form in the end of day measures, too which would tend to lengthen the amount of time necessary to satisfy sellers (longer basing period needed). This is true for both the Nasdaq and the S&P 500.
If there is a selling capitulation on Monday and then a reversal, the CBOE volatility index, or VXO, should probably start printing below 19.33 to act as confirmation that a short-covering is in play.
Immediate S&P 500
support is 1,063-1,031, with a focus of support at 1,060-1,046.
The Nasdaq's next layer of support is 1,776-1,600 with a focus 1,745-1,675.
resistance for the S&P 500 is 1,069-1,075, 1,086-1,092 then 1,103-1,109.30, 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37.
Immediate resistance for the Nasdaq is now 1,793-1,906.28, overlapped at 1,783-1,815, making a focus 1,783-1,793. Next resistances are 1,831-1,843.05, 1,848-1,864, and 1,874-1,880.81.
Any time resistances are exceeded they must be treated as supports until proven otherwise. Any time supports are undercut they must be treated as resistance until proven otherwise. Cherney is chief market analyst for Standard & Poor's