Buyers Remain on the Sidelines

There might be an air of caution in the market next week ahead of Friday's employment report

By Paul Cherney

The Sept. 27 analyst downgrades of General Electric (GE ), the layoffs at SBC Communications (SBC ), and the profit warnings from Philip Morris (MO ) and Wyeth (WYE ) are not the kind of news that the markets need to go higher. In the most simplistic terms, if you think about what happens in a bull market, prices rise because companies guide higher, analysts raise their expectations and then when companies report earnings, they beat the raised estimates. These days we are seeing virtually the opposite of this scenario.

Next week, the employment report comes on Friday. This might create an air of caution ahead of the report.

Many mutual funds end their fiscal year in October and with another down year coming into this October there could be tax loss selling at the mutual funds.

October has a reputation of being a bear killer (meaning some big bear markets have ended in October), prices can push lower in the beginning of the month and then rebound in the second half of the month. There is a good possibility that can happen this October. I will be looking for signs to suggest that it is happening, I think the odds are good that something like that should happen, but with the blue chip disappointments of this past week, an air of caution ahead of the employment report on Friday might only keep potential long-term buyers in a cautious wait and see attitude regardless of any technical studies which might be in place.

Support: Immediate support for the S&P 500 is 832-817. Support is stacked 818-796.73 (this is inside the 844-775 price range created on July 24). The next support is 763-733.

Immediate support for the Nasdaq is 1203-1184, then 1154-1118.

Resistance: Immediate intraday resistance for the S&P 500 is 838-856.60, then 878-893.

Immediate resistances for the Nasdaq are 1216-1243 and 1232-1251, which makes the 1232-1243 area a focus of resistance. Friday's intraday high print for the Nasdaq was 1235.08.

Cherney is chief market analyst for Standard & Poor's

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