By Paul Cherney From Cherney Market Analysis
I am of the opinion that it would be wiser to wait for thoroughly oversold readings in the end-of-day measures before expecting a bounce of significance. I still think upside is limited. But I think a bounce on Monday is likely.
The weekly measures I run on the Nasdaq are starting to turn negative but I usually have to see more deeply negative readings in my end-of-day measures to tilt the odds for additional downside. I have been of the opinion that the upside is limited; that is still the case, But I make daily calls, too, and I have to report that right now, on a short-term basis, I just don't have terrible end-of-day readings for the Nasdaq. There are times when the measures become so bad that there has to be a purge, several days of losses, but right now, I do not have the shorter term readings that I associate with big downside risk short-term. I can simply be wrong, but I think Monday has limited downside risk.
Early weakness in the session is possible, but there would have to be a headline of bearish importance to force prices decidedly lower. On Friday, we had headlines from Dell (DELL) and another surge in oil prices. On Monday, Dell's headlines will be yesterday's news (not a shock factor). No one knows how far the price of oil will move in the current uptrend, but in today's intraday activity, volume measures I run suggest to me that the buying interest is fading (a short-term condition, but one that might be suggesting that crude oil is also overbought short-term and due for profit-taking). I think if there is any retracement in oil on Monday, stock prices can enjoy a rebound.
Both the Nasdaq and the S&P 500 are at levels of heavy resistance that I expect to cap gains, but if I am wrong, prices will tell me so if the Nasdaq moves above 2195, or the S&P 500 moves above the 1245 level.
Even though Friday was a day of lopsided activity, where decliners outpaced advancers in a significant fashion on the NYSE, it does not look likely to me right now that an oversold reading in one of my NYSE breadth measures will necessarily trigger.
This is still the case: The nature of the S&P 500 chart makes it doubtful to me that there can be a huge drop, but conditions right now are not positive.
Nasdaq immediate resistance is 2165-2185.91; resistance gets thick at 2177.85 and higher. The next resistance is 2189-2207.79; resistance is well-defined (strong) at 2201.91-2207.79, then 2211-2249, with a focus at 2211-2233.33. Resistance gets thick at 2225-2233. Anytime immediate resistances are exceeded, they convert to supports until proven otherwise.
S&P 500 intraday resistance is 1229-1239.76. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62, but resistance runs all the way to 1245.81. The next focus of resistance above 1245 is 1249.23-1267.
Nasdaq supports are stacked, and it is usually difficult for prices to drop through stacked support unless there is a headline of undeniably bearish (or sentimental) impact. The Nasdaq index has support at 2167-2144.78 and a small shelf at 2144-2136. A close below 2144 does not find the next well defined layer of support until 2106-2076 (very strong and should hold if tested).
The S&P 500 has immediate intraday support at 1231.79-1222.67. There is a thin shelf at 1219-1215, with the next meaningful support at 1206-1183 (very strong). The comments I made about the Nasdaq 2165.44 level (buyers less willing to make a whole-hearted commitment) apply to the S&P 500 1219.80 level; a close below this level would increase expectations for a sideways market, not aggressively positive or negative. The S&P 500 has a special situation, it has been able to weather selling without dropping dramatically due to the strength in oil related shares. If oil prices drop, a return to non-energy related shares might be partially offset by short-term profit-taking in energy related shares. A close below the 1219.80 level would be short-term negative, but significant downside risk is not expected and if, over the course of the next couple of weeks, the S&P 500 tests 1206-1183. This looks like a place on the chart for a floor.