By Paul Cherney
There was nothing in my overnight system run on Monday night that suggested there wouldn't be gains in both the NASDAQ and the S&P 500 in Tuesday's session, but apparently, the markets expected more from Chairman Greenspan because it wasn't until he concluded his question and answer session that the major equity indexes just moved lower.
Once again I am forced to be concerned about additional downside because when a market can't hold onto intraday gains and finishes lower, for me, it is a plain and simple sign that market participants are more interested in exiting than in entering.
Late day intraday technical measures suggest that the odds are tilted to favor further downside during Wednesday's pre-noon trading.
This is the Wednesday of Option expiration week and quite often markets can move one way at the open and then reverse course sometime later in the day. Some of this activity may have to do with options players closing out current month positions and rolling forward. I used to call this day A.M./P.M. reversal day. During the great bull run of 1995-2000, the usual movement for prices was flat to lower at the open and then some sort of a lift to finish well above the lows of the session.
The NASDAQ has immediate (intraday) resistance 2468-2480 then 2483-2504, then brick wall resistance 2523-2555. In Monday's end-of-day comment, I wrote that it would not be good if the NASDAQ were to print below 2435, Tuesday's close was 2427.73. Downside risk has opened for prints 2406-2376. If prices were to print below 2376 for more than 3 or 4 minutes without attracting buyers, then the next support is 2353-2291.
The S&P 500 has immediate support in the 1322-1311 area. This focus is within a broader area of support, which is 1329-1301. Immediate S&P 500 resistance is 1332-1339 then MAJOR, brick wall resistance is 1351-1389 with a focus in the 1353-1368 area.
I have been reluctant to mention the following two pieces of information because I had thought that the Fed's assumption of an easing policy would offset these technical conditions, BUT... during the entire sell-off since March, there has been only one CBOE end-of-day Total Put/Call ratio reading of greater than 1.00, that occurred on Oct. 18, 20000 and since then, the markets (NASDAQ and S&P 500) have experienced an additional downtrend, which has undercut price levels at the time of the over 1.00 reading.
I am concerned that there is too much complacency and that there might have to be another hard drop in prices (NASDAQ) before the markets can move higher.
There is another item of concern, the Investor's Intelligence percentage bulls, which hit 61.8% last week, its highest level in 14 years. If this is an accurate number then you have to wonder how many potential buyers are left to buy. I can tell you that during the past 10 years, I used to use readings of over 55 as a signal to myself to start paying close attention to signs of technical weakness because at those levels (% bullish advisors > 55%) there were few people not already invested so where would the new buying money be found? Some caution is warranted.
Cherney is market analyst for Standard & Poor's