By Paul Cherney
Thursday's intraday price and volume action has been bullish.
If the S&P 500 closes above the 1123 level, then I was wrong about this price action simply being a sideways consolidation before weaker prices followed. A close above the 1123 level would force me to view the sideways consolidation of the past 9 trade days as a potential launching pad for higher prices, not a sideways exhaustion of buying power.
If the S&P 500 moves above the 1107.12 level then 1107-1089 becomes immediate support. The next level of resistance is 1114-1135.52. resistance becomes thick with prints of 1123 and higher.
The battle line for the Nasdaq was 1722-1754 and Thursday's close has now made this area an area of immediate support.
Major resistance (brick wall, based on end of day data) for the S&P 500 is 1153-1199 (not expected to be tested in this upleg unless there is a powerfully positive headline related to the War on Terrorism or technical conditions improve.)
I have had an overnight system issue a warning that an S&P 500 close under 1090.57 would increase odds for additional downside risk. The last time this system fired was 6/28/01. Downside risk was 4.3% on a print basis and 3.3% on a closing basis. If the S&P 500 duplicated the percentage move it made after the 6/28/01 signal, it would mean an S&P 500 low print near 1043.89, an S&P 500 low close near 1054.36 sometime within the first 3 to 7 trade days after the close below 1090.57. (I caution to add that history never repeats exactly and I also feel compelled to remind you that we have not closed under 1090.57 yet.)
Here are the other dates in the past 2 years that this system has fired: February 16, 2001, August 30, 2000, June 20, 2000, May 15, 2000, April 10, 2000, March 31, 2000, January 20, 2000, November 15, 1999, and October 11, 1999. If you have access to historical charts you might want to look at the price performance after these signals.
The Nasdaq has major resistance 1782-1934. Late session price action sugests additional gains on Friday morning.
Cherney is market analyst for Standard & Poor's