By Paul Cherney
I cannot imagine that there will be many buyers willing to step into this market ahead of the July 4 holiday weekend, just bears covering shorts.
Choppy price action with a negative bias is still likely.
I still believe that there should be some sort of stabilization for prices and then a rebound. The problem is: How far down before the rebound?
Starting Wednesday afternoon, the ranks of attendance on Wall Street will thin. With the July 4 holiday falling on a Thursday and thin attendance on Wednesday afternoon, Friday's potential for a thin audience might only contribute to jagged price patterns.
The price pattern which would increase the chances for some sort of a rebound would be a drop at the open, an attempt to rebound, then another drop which moves prices to new intraday lows and then a rush of volume as prices climb out of the depths.
The Nasdaq has immediate resistance at 1366-1381, then 1425-1436.43.
The S&P 500 has immediate resistance at 954-969, then 978-984.58.
Nasdaq support: Prints below 1375 have occurred before Monday, July 8. In the end of day comment from Monday I warned that if the index printed below 1375 that it might only foster more selling. I think that will be the case, but a lack of interest by bulls and some short-covering ahead of the July 4 holiday might prevent prices from dropping dramatically on Wednesday.
I have looked at long-term charts for the Nasdaq and the 1380-1200 area looks like a band of solid support which will act as a floor for prices. (The 1380-1200 layer is from the years 1996-1997.) I was wrong about the Nasdaq having only one close below 1387 (technically there has been one close below the 1387 level in this leg and that was Tuesday, July 2) but I'm anticipating another close or two below 1387 over the next two trade days.
I have re-reviewed the charts from 1996 and 1997. There is a Nasdaq focus of support at 1333-1295, which is a likely spot for short-covering to occur.
Immediate intraday support for the S&P 500 has almost broken (967-944). I have looked at long-term charts of the S&P 500 and we are at the level 960-926 (from late 1997) which should act as a floor for prices. If there is some sort of a capitulation of sellers which pushes prices below 926, to close below 926, I would expect to see a traditional panicked capitulation sell-off on the next trade day.
The longer-term oversold levels reached in my weekly S&P 500 price and NYSE volume data might simply be wrong, but so far, the jagged, choppy price action is pretty typical of other bottoms. These indicators are based on weekly data and they do not pinpoint the exact day of the low close. ON the 4th of July, I will be reviewing the data and the previous signals to see if there were other technical factors in place which would have rendered the most recent signal invalid. (to determine whether I was just wrong to expect some price stability and a rebound which lasted more than 1 or 2 trade days).
Cherney is chief market analyst for Standard & Poor's