By Paul Cherney
There was one lesson learned by many during the great bear market; paper profits aren't worth the paper they are printed on. If a person is long a stock, the only way you book a profit is by physically selling the stock; that lesson in the realities of the marketplace might have played a hand in the NASDAQ's decline on Friday.
The stocks with some of the biggest price advances over the past seven months represented the biggest potential for profits, and tech stocks saw profit-taking on Friday. The negative momentum established Friday might be strong enough to force NASDAQ prices to fill a price gap created by the gap opening on Oct. 28. That gap in the NASDAQ's chart is 1892.43-1883.93.
A critical price point for the NASDAQ is the 1923.50 level (the lowest price print in the sideways consolidation established since Oct. 29). Usually, the first test of a level like this is used by bears to book some profits, which means they become buyers, they buy back their short positions, but if the rebound they start in prices does not attract other buyers and prices lose upside momentum and rollover, then the next move below such a critical level can pick up steam and move even lower. If that were to happen, the price gap (NASDAQ 1892.43 to 1890.66) and the support 1890-1873 look like a likely spot for an attempt at stability and a perhaps a rebound in prices.
There is no market law that says price gaps have to get filled, but I would be remiss if I did not point out that there is another price gap in the NASDAQ's chart, it is 1873.62-1866.43. Even this gap could get filled without breaking the longer-term uptrend for prices.
Intraday indicators based on 60 minute NASDAQ price bars are in configurations which usually see another lower close.
Immediate resistance is 1945.69-1956.93, The next intraday resistance is a small ledge 1967-1973.08, then well-defined intraday resistance was established on Friday, Nov. 7 after the robust employment report; that resistance is 1978-1992.27 with especially thick resistance 1984-1989.31.
The S&P 500 has resistance 1054 to 1062.19 with a focus 1056.94-1060.79. The S&P 500 has resistance established back in May of 2002 at 1058.67-1106.59 and inside this 1058-1106 area, there is what looks like Brick Wall resistance at 1068-1090: I think the first price move into this area will probably be repelled.
The S&P 500 has immediate intraday support remains 1055-1048.55. Stairstep supports are in place, the next supports are 1046-1043 and 1036-1018.32 with a focus of support 1029-1922.
A critical price point for the S&P 500 looks like 1043.46. This would be similar to the NASDAQ 1923.50 price level mentioned above. The first test of S&P 500 1043 could see a rebound, but if the rebound cannot move higher and it runs out of momentum and prices roll-over and undercut this level again, then a test of the focus of support (1029-1022) would be perfectly natural.
Cherney is chief market analyst for Standard & Poor's