By Paul Cherney
The S&P 500 and the Nasdaq are approaching areas on the chart which look ripe for sideways consolidation or a little profit-taking. But prices have not yet reached price levels which would represent the ripest for profit-taking, I think they would be S&P 500 over 909 and Nasdaq prints in the 1374-1399.
What is there to inspire more buying once the Fed cuts rate next Wednesday? The markets might have to wait until Thanksgiving and anticipation of fourth-quarter earnings reports.
We are entering into a seasonally strong time of the year so the potential for bigger gains is always there, and, other technical (other bullish technical conditions) might unfold which support higher prices, but for now I am expecting limited upside from here for the same reasons I mentioned in the Oct. 31 column (which I have retained in this edition).
This is the repeat of the historical studies I have done which make me think that upside from here could be a struggle: This year, the S&P 500 had a third-quarter loss of more than 10%. All the Q3 losses of 10% or greater since 1960 have seen gains by the end of the fourth quarter which follows, but, if you looked at the highest close achieved during those fourth quarters, the average of all the "best" closes for each of the fourth quarters was a gain of 13.45%. In terms of this market, that would equate to an S&P 500 close of 925. So I think the upside is probably limited.
I don't think that there is tremendous downside. The studies I have performed on S&P 500 price performance in the fourth quarter following a third-quarter loss of 10% or greater has also displayed a very consistent pattern: The low close for the fourth quarter has occurred on or before the ninth trade day of the quarter. So by this measure, we have seen the low, but the upside appears limited.
Support: The S&P 500 has multiple stairsteps of support. Immediate support is now 894-885 and 890-873, which makes the 890-885 area a focus of support. The stairsteps of support include 877.51-866.14, 866.64-856.28, and 850-840.
Immediate Nasdaq support is 1347-1331, then 1319-1300, 1256-1229, and 1244-1220, which makes the 1244-1229 area a focus of support.
Resistance: Immediate intraday resistance for the S&P 500 is 891-905.26 and 900.50-909.89, which makes the 900.50-905.26 area a focus of resistance. Next resistance is 909-928.
The Nasdaq has thick resistance at 1360-1427, with a brick wall at 1374-1399.
Cherney is chief market analyst for Standard & Poor's