By Paul Cherney From Cherney Market Analysis
This is the week of the quarterly expirations (known for years as the Triple Witch).
On Monday, the decline in energy related futures finally reached the point where oil related shares started to see some profit-taking (helped by brokerage downgrades of a couple of oil services stocks). The bull market for oil is a fundamental story of global demand, but there is some vulnerability to short-term profit-taking.
The S&P 500 and the Nasdaq are at key levels of resistance. Short-term momentum measures remain positive, but this is the week of the Triple Witch and there are leveraged bets whose unwinding ahead of the expirations on Friday can sometimes create a price movement one way on Tuesday and the other way on Wednesday.
Both the Nasdaq and the S&P 500 are at key levels of resistance. The "key" levels of resistance I am referring to are Nasdaq 2177-2185.91 and S&P 500 1238-1242.62. One of the most bullish things that can happen is a gap above the key resistance levels and a close above those levels. An event like this can ignite buying that creates a trend that no one believes. If the Nasdaq produces a close above 2185.91, if the S&P 500 produces a close above 1242.62, another extension higher would be expected.
At this time, even if there is a failure at the key resistance levels, downside appears limited.
A break above the key resistance levels would increase the pressure to buy and there should be a short (a couple of trade days) break to the upside. Then there is a potential that the Fed could dampen spirits: the markets want to hear the FOMC include some qualifier that a pause in rate hikes would be likely if it is perceived that the impact of Katrina is burden for the economy.
The Nasdaq has resistance at 2165-2185.91; resistance gets thick at 2177.85-2185.91. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens at 2211-2233.
S&P 500 resistance is formidable at 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 intraday support is a thick shelf at 2163-2158.61; next intraday support is a gap at 2147.31-2141 (intraday charts).
Nasdaq support is 2158-2140 and 2138.46-2130. stacked at 2128-1212. Next meaningful support for the Nasdaq is 2106-2039 with a focus of support 2106-2076 (very strong and should hold). This has not been tested.
The S&P 500 has support 1236.77-1229.51, stacked at 1228.96-1218, overlapped at 1219-1215. Next support is 1206-1165 with a focus of support at 1206-1183. This is a very strong layer of support and if it were tested, I would still expect it to hold.