By Paul Cherney
The technical condition of the markets is still neutral with a positive bias. Prices for both the Nasdaq and the S&P 500 have moved into areas of thick resistance which have capped prices for two months.
In Monday's market, intraday measures based on 60-minute bar charts registered short-term overbought levels which are usually followed by sideways consolidation. This has created the possibility for a short-term (brief) bout of aggressive profit-taking sometime during the next two trade days.
Immediate downside risk looks limited to S&P 500 prints 991-980 or Nasdaq prints 1711-1696. The potential for aggressive short-term profit-taking would not gain momentum unless the S&P 500 printed below 996 or the Nasdaq printed below 1721 for more than 4 minutes without attracting buyers. Quite often after 60-minute signals like these, prices can move just generally sideways with a small drift lower.
Due to the light summertime trade, volume weighted indicators become less than reliable and part of the 60-minute signals mentioned above are based on volume weightings. On a pure price momentum basis, both indexes are neutral with a positive bias but they might have to consolidate Monday's gains on Tuesday or Wednesday.
Resistance: The Nasdaq has exceeded resistance at 1711-1736, which now converts to immediate support. The Nasdaq has major resistance at 1722-1758. Technically, a case can be made for resistance all the way to 1776.10, but there simply is not enough price traffic in the 1758-1776 area to label it strong resistance. The index finished Monday's session in a shelf/focus of resistance which is 1737-1753.
Immediate resistance for the S&P 500 is 1004.59-1015.41. Its focuses of resistance are 1005-1008 and 1010-1015. The bigger picture of resistance, which was established by price action in June, 2002, is that the S&P 500 has a band of resistance at 1008-1041 with a focus at 1020-1031. If you look at the overlap of resistances, the 1008-1015 layer is a stumbling block for S&P 500 prices.
Supports: The S&P 500 has support at 991-984, stacked at 985-974 and 976-960.84. I cannot rule out that sometime before the middle of September that 949-912 support will be tested, but for right now, there is a positive bias in place. The S&P 500 still technically has a small chance of printing under 950. These markets have not seen a one-third or a 50% retracement for the move up since March's lows, and retracements like that are common, but in the short-term, prices have stabilized, and for now, it looks like prices should edge higher.
The Nasdaq has immediate support at 1736-1711, 1703-1695, and 1694-1681.31.
Cherney is chief market analyst for Standard & Poor's