By Paul Cherney
The seasonal bias for positive price action during the last five trade days of the year through to the close of the second trade day of the new year is drawing to a close.
Upside momentum in the very short-term has flattened and turned lower for both the NASDAQ and the S&P 500. The beginning of this new year has the potential to see violent swings in prices. This past year (2001) saw markets dive on the opening day only to be reversed the very second trade day by the Fed's first rate cut of the current easing. I don't think a Fed rate move will happpen on Thursday.
A day of weakness could easily unfold. The brick wall resistance which the NASDAQ and the S&P 500 have been bumping into might require a short-term retracement to swing prices higher after another test of the immediate and substantial support levels. This is really just a guess on my part, right now the majority of my indicators are simply not issuing signals except that we have lost short-term positive momentum.
The NASDAQ has been testing intermediate term (a weekly view) brick wall resistance in the 1934-2106 area. Immediate intraday resistance is 1968-1985. There is additional resistance 1999-2027 and 2010-2065. The overlap of these bands of resistance is the focus of resistance for the NASDAQ: 2010-2027.
The NASDAQ has well defined intermediate term chart support 1965-1853. The index has intraday chart support 1942-1913.
The S&P 500 has intermediate term brickwall resistance 1153-1206. The S&P 500 has a thin shelf of intraday support 1147-1140, and then 1137-1132. Downside risk appears limited, but upside moves in either index (NASDAQ or S&P 500) would be suspect unless a clearly bullish headline accompanies the move. The indexes are stuck in a sideways trend waiting for a catalyst, maybe the earnings reports in January will represent that catalyst.
I think the upcoming year is going to end higher, but the road there will not be an easy well-defined trend higher. I also think that there should be some sort of a retracement of the gains we have seen since the September lows but this might not occur until after February. The lows established in a retracement will probably be viewed as a long-term buying opportunity.
Cherney is market analyst for Standard & Poor's