By Paul Cherney
Please note: Paul Cherney will be on vacation Friday, May 24, through Monday, June 3. His column will return Tuesday, June 4.
Thursday's durable goods report is a positive for the markets and should bolster confidence that there will be no retests of the September lows. But a significant breakout to the upside is doubtful right now because there should still be some caution ahead of the second-quarter confessional season.
The next couple of weeks could see sporadic warnings, but the traditional warning season usually doesn't ramp up until the middle of the month (June).
The price action on the charts since the May 7 lows has been constructive, and by my look at the charts, I would say that it has been positive. Look at price action since May 7. On May 8, the markets experienced a short-covering rally, then a retracement which found buyers above the previous low.
So far, the markets (Nasdaq and S&P 500) have found some buying support at roughly 50% retracement levels of the gains seen from the intraday lows established on May 7 to the recent highs (The S&P 500's intraday high was 1106.59 and occurred on May 17; the Nasdaq's intraday high occurred on May 15 and it was 1759.33). The 50% retracement levels are 1077.83 for the "500", and 1659.81 for the Nasdaq. The most recent swing highs (S&P 500 1106.59 and Nasdaq 1759.33) represent potential Point B bullish breakout points (short-term) in ABC Patterns using daily bar charts.
The immediate layer of intraday Nasdaq resistance is 1696-1708. Resistance becomes very thick with prints 1729-1760. Pockets of resistance inside this 1729-1760 area include 1736-1749 and 1752-1760. Everytime a layer of resistance is exceeded, you have to assume that it has been converted to support (until proven otherwise).
The Nasdaq index has major resistance at 1777-1832.
Immediate intraday Nasdaq support is 1680-1664. The next layer of considerable support is 1653.10-1630.80.
Immediate S&P 500 support is now 1089-1085. The index has extensive support at 1080-1064.
Immediate S&P 500 resistance is now 1102-1115, with a focus at 1105-1109. The next layer of resistance is directly overhead at 1117-1133.31 with a focus 1122-1127.
Good luck in the markets.
Cherney is chief market analyst for Standard & Poor's