Positive Bias Still in Place

But caution ahead of earnings warning season will probably prevent prices from making a strong break higher

By Paul Cherney

There are no major signals apparent in my work right now.

Some caution ahead of the earnings warning season will probably prevent prices from making a strong break higher, but there still is a positive bias in place.

What's the Fed going to do? There is a good chance they will change their bias from one of easing to neutral, no rate changes should come out of the meeting. Often, the markets put a bullish spin on such a change and the rationale goes: the Fed wouldn't be changing its mind if the economy were not strengthening, a strong economy means better earnings. If there is a negative reaction to the Fed, I don't think it can move prices dramatically right now. The bigger short-term problem (I think) is that there will still be some caution to commit in this earnings confessional season, so moves higher might noly last one or two days and then more consolidation and sideways.

The Nasdaq has a layer of price action in the 1864-1875 area,which is acting like a pivot point. The next layer of resistance is well-defined at 1887-1899. Monday's intraday high was 1893.26. The resistance in the 1887-1899 area is from intraday charts, but charts based on end-of-day price bars show a band of resistance in the 1901-1960 area with a focus at 8-1942.

Immediate support for the Nasdaq is well-organized in the 1853-1832 area. If prices were to print in the 1541-1532 range, I think there would be a sharp rebound intraday, but the buying might only be short-sellers booking profits and probably won't have a lasting impact (maybe just the day). I did have a yellow flag of warning on the Nasdaq. The warning is that if there are 3 out of 4 consecutive trade days in which the index closes below its 20-day exponential moving average, then risk for downside price movement increases dramatically. If that were to occur, the system is projecting (8 in 10 odds) that intraday prices could hit 1742-1705. As of Friday's close, the 20 day exponential moving average of the Nasdaq's close was 1853.76.

The S&P 500 has a layer of support from 1161.00-1154 and then 1158-1143. The S&P 500 has been caught in a band of intermediate term resistance which runs from 1150-1177 (daily charts). Resistance (intraday) is 1169-1177. In Monday's early shot higher, the index printed a high of 1172.73. The next layer of resistance is 1190-1206. There is still an underlying positive bias in place.

Cherney is market analyst for Standard & Poor's

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