By Paul Cherney
It will be the reaction to President Bush's speech on Iraq Monday night that dictates price action on Tuesday. Both the Nasdaq and the S&P 500 are oversold and ready for a bounce.
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.
Support: The S&P 500 has a small pocket of support 785-775. The next layer of support (from Daily charts dating from April of 1997) is 771-733 there is a concentration of price action in the 763-747 area.
The Nasdaq is inside a band of support 1154-1118. The next layer of support under 1118 is 1082-1017. I think there will have to be some sort of a short-term oversold bounce before prices for the Nasdaq can close below 1118 to open downside risk for prints 1082-1017.
If the Nasdaq prints under 1118, near 1100 in Tuesday's session, a rebound in prices would be natural. The same level for the S&P 500 would be prints under about 770. One of the reasons why these price levels might spark a rebound from oversold is that shortside traders might move in a group to cover open short positions.
Resistance: Immediate intraday resistance for the S&P 500 is 792-809, then 812-828, then 835-856.60.
Immediate resistances for the Nasdaq are 1125-1146, then 1164-1184.56 (focus).
Cherney is chief market analyst for Standard & Poor's