By Paul Cherney
Wednesday's price action was a possible set-up for a drop at the open on Thursday. If that is the case, then bears with short positions will probably convert to buyers to book short-term profits.
We are starting to move into the reporting season and it will take a more positive view of future earnings to help these markets move higher.
Volume was healthy at both the NYSE and the Nasdaq and I think the markets are in a bottoming process (really).
If we are really going to see a reversal in prices, I think we are going to have see money move out of bonds to fuel a lift in stocks. Ticker TNX is the yield on the 10-year Treasury note (just move the decimal point one place to the left). The TNX chart looks as if it has the potential to reverse, but I think it would take a move in the TNX above 36.70. Intraday, I will start to pay attention at any move higher in the yield above 36.30.
October has a reputation for being a bear killer (meaning some big bear markets have ended in October). Prices can push lower in the beginning of the month (we've seen that, we are seeing that now) and then prices can rebound in the second half of the month (this might happen, we are starting to see consistently high trading volumes which is often a sign that the markets are ridding themselves of short-term selling pressures).
Support: The S&P 500 has immediate support at 793-779. There is a pocket of support at 785-775. The next layer of support (from daily charts dating from April, 1997) is 771-733; there is a concentration of price action in the 763-747 area. If there are prints in this zone I think some short-covering should follow, but I would need to see a move higher in the TNX to offer some sort of sign that that safe havens were being abandoned by the hot money for the sake of stock market gains (even if they are for only a day or two).
The Nasdaq's next layer of support is 1082-1017. I do not think the Nasdaq can reach these levels on Thursday unless there is a headline of catastrophic impact. I will be looking to the S&P 500 and the TNX to offer signals of a potential rebound.
The DJIA has support at 7112-6500.
Resistance: Immediate intraday resistance for the S&P 500 is 782-793 then 801-811.62. Resistance is stacked and very thick 817-830.
Immediate resistances for the Nasdaq are 1125-1146, then 1164-1184.56 (focus).
Cherney is chief market analyst for Standard & Poor's