By Paul Cherney
Thursday and Friday's gains were powerful, and I think the odds have increased for a positive trend in prices for the second half of October. But I think it is important to point out that price action should still be a little jagged.
Over the past two trading days, the S&P 500 has gained 7.5%. S&P quantitative analyst Andre Archambault informs me that over the past 40 years, two days of this magnitude or larger are very rare (it's only happened four times since 1962). On the trade that would equate to Monday's session, three out of four times saw an average closing gain of 2% for what would be this Monday, the one time that gains did not occur, the loss on the day was 3.9%.
Most of the earnings warnings are probably out of the way and the markets might receive earnings reports which at least are simply meeting expectations (which would limit the downside). I still expect jagged trading and risks for sub-800 S&P 500 closes have not been eliminated.
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 and then prices can rebound in the second half of the month and I think that is what is happening to these markets.
Support: Intraday S&P 500 support is 832-827.40 then 821.02-816.52. The S&P 500 has more substantial support 806-779 with a focus 806-795.
Immediate Nasdaq support is 1203-1194. The index created a gap 1179.90-1163.50 with Friday's opening and a migration back to at least print inside that gap might occur next week. The next support below the gap is 1153-1139.44 and 1144-1108 which makes the 1144-1139 area a focus.
Resistance: Immediate intraday resistance for the S&P 500 is 835-856.60 with a focus 844-852. This is the likely spot for the current lift in prices to meet selling pressure. The next major resistance is 871-924 with a well defined wall at 881-890
The next layer of Nasdaq resistance is 1211-1239.62. focus 1221-1227. Major resistance is 1266-1347 with a focus 1269-1297.
Cherney is chief market analyst for Standard & Poor's