By Paul Cherney
The Nasdaq's breakout of its trading range has created the potential for a test of 1,912-1,954. The S&P 500 has the potential to print 1,047-1,070. There is no time frame for these potential moves.
Tuesday was a day of distribution as total trading volume for both the Nasdaq and the NYSE was larger than Monday's total volume figures, while prices for the major indexes moved lower. This is not ideally what bulls should want to see.
Even though prices advanced on Monday, the advance did not really improve indicators which measure price combined with volume. It is a mixed technical picture in that end-of-day measures have already registered levels which keep a positive background momentum in place, which usually sees short-term dips in price greeted as a buying opportunity, but the strength of the current upleg has to be questioned. A session with closing gains on cheap volume would not be healthy and could lead to a retrenchment into the trading ranges established during June, July, and August.
As for now, I would expect that the first S&P 500 prints under 1,015, or Nasdaq prints under 1,825 should attract buyers for a bounce.
The Nasdaq has immediate intraday resistance at 1,874-1,893; this layer of resistance is based on intraday trading (60 minute bars) from March 18 and 19 of 2002. The further back in time you go, the less important short-term intraday price ranges become, but this market has not moved above the 1,893 level intraday.
The Nasdaq has a price gap created by the opening on Mar. 12, 2002. These are hourly charts and the gap runs from 1,899.01-1,928.12. Quite often, the first test of a price gap brings sellers to the markets.
There are multiple layers of Nasdaq immediate intraday supports: 1,864-1,850 and an overlapping area of support is 1,860-1,846, which makes the 1,860-1,850 area a focus of support. If the index were to have a shakeout in the morning on Wednesday, I think that might relieve some of the short-term selling pressure and allow for a small rebound in prices. But if the volume does not come in (a little doubtful that it will), then concerns would mount for a retrenchment inside the June, July, and August sideways consolidation.
The Nasdaq 1,846 level looks important on a short-term, intraday basis. If 1,846 is undercut, broken for more than 4 minutes, downside risk opens for a possible test of the next layer of well-defined intraday support, which is 1,825-1,799, and buyers should emerge if this level is tested.
S&P 500 resistance (daily bar charts) was established by price action in June, 2002; it is 1,008-1,041, with a focus at 1,020-1,031. The index has been unable to close above the 1,031 level. The next resistance is big at 1,048-1,107, from March, 2002. Two different measures of the potential upside for the current break above the 1,015 level target 1,047 and 1,070 as potential upside prints.
Immediate support for the S&P 500 is 1,015-988 with a focus at 1,015-1008. In the short-term, prints below 1,015 will probably attract buyers, but if a bounce does not attract volume, it could mean that investors are more content to sit back and wait for robust guidance during the beginning stages of this earnings "confessional" season.
Cherney is chief market analyst for Standard & Poor's