By Paul Cherney
This is options expiration week and what happens on Tuesday often can see a counter move on Wednesday.
There have been four other "fifth" discount rate cuts since 1960; in reviewing historical data, the first ten trade days after a fifth discount rate cut have historically demonstrated only minor downside risk. In looking at price performances of the Nasdaq and the S&P, the worst closing loss for either index (during the first 10 trade days after a 5th Discount rate cut) was only 2.97%. Based on Tuesday's closes, a 2.97% decline for the Nasdaq would mean a close near 2023. A 2.97% decline for the S&P 500 would mean a close near 1212.
The look of the charts has not changed: The Nasdaq and the S&P 500 appear to have established ceilings for a trading range caused by valuation concerns and the lack of significant improvements in earnings. The downside should be limited by the fact that the Fed remains in an easing posture.
Immediate (intraday) resistance for the Nasdaq is 2109-2125. The Nasdaq has established a well-defined wall of resistance in the 2187-2233 area. This is part of the broader band of resistance 2174-2233. The next layer of resistance above 2233 is directly overhead in the 2242-2356 with a focus of resistance 2253-2310.
The index has a hefty layer of support in the 2074-1995 area. If the Nasdaq were to test the 2011-1980 area, it would probably generate a swift reversal and a lift fueled by short-covering and bargain hunting. Right now, downside risk still appears limited to a retest of the 1995 area. The next layer of support (under 1995) is 1962-1868 with a focus 1939-1895.
The S&P 500 has immediate closing resistance in the 1253-1273 area. The next resistance is 1300-1341. Immediate support remains 1238-1223.
Cherney is Market Analyst for Standard & Poor's