By Paul Cherney
The markets need additional positive headlines from the war front to make a significant move higher. Downside still appears limited but it is important to realize that the lift on Wednesday was the direct result of an enthusiastic reaction to the overnight developments in the war. The markets remain susceptible to selling in the event of negative headlines.
Purely technical: Today's gap up in price for the Nasdaq combined with Monday's gap down in price has created an Island Reversal. Assume a reversal in prices unless the most recent gap gets filled. That gap is Nasdaq 1374.71-1356.37. This formation (an Island Reversal) is very rare and opinions about the finer points of Island Reversals are scant. It is called an island, because two gaps, each in opposite directions, isolate a brief period of price action. If you put "stock pattern island reversal" into a search engine like Google, you can read descriptions of this pattern.
Ideally, the "island" of prices in the chart should be the head of a head and shoulders pattern (either a standard H&S for a top or an inverted H&S for a bottom).
The current markets have other, more familiar technical cases suggesting strength (even though Wednesday's price action is directly the result of good headlines from the war). On the daily charts, both the Nasdaq and the S&P 500 have established a higher low when compared to the Mar. 12 bottom, but to complete this short-term price pattern, additional gains are needed.
The current chart patterns for the S&P 500 and the Nasdaq have the potential to be ABC Patterns on the daily charts. To complete this potentially bullish pattern, the Nasdaq would have to close above the 1425.73 level. The S&P 500 would have to close above the 895.90 level. These price levels represent the highs established on Mar. 21. Closes above these levels would increase the positive nature of the price action, but I still think it will require continued good headlines from the war to force prices above the substantial resistance levels obvious in the charts. Those resistance levels are at 887-911 for the S&P 500 and 1420-1467 for the Nasdaq, with a focus of 1433-1451.
Tuesday's volume was healthy, but it was not high enough to suggest that the sidelines are emptying as impartial observers crowd the floor with buy tickets in hand. There is still caution to commit.
Intraday Supports: Immediate intraday support for the S&P 500 is now 880.51-876.41. The index has additional support at 875.80-873.47; technically, a case can be made for support all the way to 866, but the chances for jagged trading with some downside risk would increase if the S&P 500 were to print below 873.
Immediate Nasdaq intraday support is now 1390-1385.09. Prints below 1385.09 which last for more than four minutes would be a sign that would increase the chance for some jagged action
The S&P 500's substantial support is 852-826, with a focus of 848-839.
The Nasdaq's substantial support is 1352-1326.49, with a focus of 1347-1333.
Cherney is chief market analyst for Standard & Poor's