By Paul Cherney
Some caution ahead of the earnings warning season will probably prevent prices from making a strong break higher.
Thursday's recovery from intraday lows is a short-term positive, but really, considering the 3.9% drop in the Nasdaq from Monday's high (1893.01). much of what occurred in Thursday's session could have been inspired by short-covering (and short-covering usually does not last very long. It can lead to greater gains, but technically the shorts are out of the way in a day or a day and a half and it is up to longer-term investors to step to the plate then.
It will take closes above the immediate layers of resistance to potentially create enough momentum to forge a labored advance. That would mean a Nasdaq move above immediate intraday resistance at 1973-1899.01, and an S&P 500 move above immediate resistance at 1157-1162.02.
I cannot rule out higher prices because next week is the end of the quarter and quarterly management fees are based on the value of assets under management, marked to the market as of the close of trading on Thursday, Mar. 28 (the last trading day of the quarter), so there is an inspiration among money managers to try to keep prices from falling.
The Nasdaq has well-defined resistance in the 1887-1899 area. 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 1908-1942.
Immediate closing support for the Nasdaq is well-organized in the 1853-1832 area. The index dipped below the 1832 level in Thursday's market and that generated an oversold rebound in prices. Warning: if Nasdaq prices move below the 1825 level, then additional downside should occur.
If the rebound in the Nasdaq is going to have a chance at additional gains it will have to overcome the the well defined resistance in the 1878-1899 area (because these are the price levels where the bears have been rewarded for going short, and if they try to go short on a return visit to this area, but the longer term investors step to the plate as buyers, pushing prices above the 1900 level, then the advance could force a panic driven short-covering scramble by the bears.
The S&P 500 has immediate resistance 1157-1174, inside this resistance is an important shelf 1157-1162.
The S&P 500 has a band of intermediate term resistance which runs 1150-1177 (daily charts). The next layer of resistance is 1190-1206.
Cherney is market analyst for Standard & Poor's