By Paul Cherney
Wednesdays in the week of options expiration can trade in a price direction the opposite of Tuesday's. Since Tuesday was up, that would mean that Wednesday could be down, but I think there is an overriding fundamental in place here which should keep a floor under prices and allow the markets to labor higher: the earnings warning season is over. We are now starting to see the earnings reports from the companies who did not warn, so negative surprises should be few and far between.
Intraday: it would be better to see some downside at the open of trading on Wednesday because on Tuesday, the major indexes closed at or near their best levels of the session and usually, if the open trade on the following day is higher (unless there is a headline of undeniably bullish importance), then the opening lift is short-lived and prices will retrace to test the previous day's close (meaning Tuesday's closes), before a genuine trend for the day can unfold.
My breadth and New highs/New lows measures have been positive, but it has been the weight of the large caps which were preventing the indexes from producing anything significant to the upside. The earnings reports should put a positive tone in place but I do not expect a rocket shot to the moon. On balance, positive price action, but certainly not everyday a winner.
The Nasdaq has support 1806-1779 but the important focus of support is 1806-1799. If prices are going to see good followthorugh higher, retracements in price should find buying support at or above the 1806-1799 level.
It would not be healthy to see Nasdaq prints below 1779 because 1779 that was Tuesday's gap opening price and if prices were to move below this level it would be sign that the move up was more fueled by short-term traders than by longer-term investors. (I do not expect prices on Wednesday to test 1779.)
The Nasdaq finished Tuesday's session in a test of resistance 1812-1873. There are two focuses of resistance: 1824-1832 then 1940-1853. The 1824-1832 area is pretty thick resistance and shorter term traders will probably be using prints in this area to exit longs, so it is a natural stalling spot. Downside looks limited, upside is more likely but it is going to take more good headlines/earning reports to push prices higher in a fashion similar to today's shift to the longside. (Part of Tuesday's buying was short-covering, and that buying influence has been spent.)
The S&P 500 has immediate resistance 1220-1233.31. It's descent from the beginning of March has been stair-step and that creates multiple steps of resistance above the current prices. I think it would be short-term bullish if the index could close above 1133.31 but understand, that due to the nature of the descent, it is unlikely that the index will simply move higher each day. There are plateaus of selling interest above the current prices and that should make for a labored advance. But I do expect an advance. Next stairstep above 1331 is 1142-1157.
Cherney is market analyst for Standard & Poor's