By Paul Cherney From Cherney Market Analysis
This is the week of August options expiration.
July reports on inflation and housing will be delivered at 8:30 a.m. ET on Tuesday. The Street expects headline CPI for July to be up 0.4%, and the core rate (ex-food, ex-energy) is expected to be up 0.2% or up 0.1%. A core rate higher than up 0.3% would probably weigh on equity prices on fears that the higher energy costs might be affecting core prices.
Housing starts and permits will also be delivered at 8:30 a.m. The Street expects starts to be at a 2.023 million to 2.025 million annualized rate. Permits are expected to have declined a little top 2.110 million annualized rate (last month was 2.132 million annualized rate).
At 9:15 a.m.. industrial production and capacity utilization will be announced. The Street expects production to be up 0.5%, and capacity is seen up 0.3% to 80.3%.
I'm 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.
Little has changed technically since Friday's comment, NASDAQ weekly measures are weakening, with a slightly negative bias, but shorter-term end of day measures remain at levels that can see a little lift in prices.
Both the NASDAQ and the S&P 500 are at levels of heavy resistance that I expect to cap gains. But if I'm wrong, prices will tell me so -- if the NASDAQ moves above 2195, or the S&P 500 moves above the 1245 level.
The machinery of the option expiration can create some volatility Tuesday and Wednesday.
Weekly measures I run on the S&P 500 are neutral, slightly weakening, but NEUTRAL is the key word here as thresholds of negativity have not been broken. There is no herd mentality right now in these measures. These measures include volume and their effectiveness is somewhat affected by the summer-time vacation volumes, but neutral means these measures have not yet tilted to suggest a good chance for a run-up or a drop.
I tend to expect that a lack of interest (probably starting after Wednesday of this week) will eventually lead to a small decline. But for the S&P 500, thresholds that would increase the chances for a move of more than a day or two have not yet been crossed. For the S&P 500, the chances for a sideways market seem high to me; my view 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, either.
NASDAQ immediate resistance is 2165-2185.91, resistance gets thick 2177.85 and higher. Next resistance is 2189-2207.79, resistance is well-defined (strong) 2201.91-2207.79, then 2211-2249 with a focus 2211-2233.33 resistance gets thick 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 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 2167-2144.78 and a small shelf 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 1231.79-1222.67. Thin shelf 1219-1215, next meaningful support is 1206-1183 (very strong). I think an S&P 500 close below the 1219.80 level would increase the chances for a sideways market that drifts down to to test 1206-1183.
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 (like Monday). A close below S&P 500 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.