By Paul Cherney
If Friday, June 4, were to be just a regular trading day without the potential impact of a reaction to a monthly employment report, my read of the technicals would be negative and I would expect sellers to have control of the day. But there is a separate reality for Friday's market and that is the 8:30 a.m. ET delivery of the May employment report.
For Friday, we all know it will be the market's reaction to the nonfarm payrolls figure which will determine price action. Technically, short-term measures have weakened to inflection points that could see prices move in either direction, but usually, when they take on the current configurations, some sort of weakness is more likely than not.
However, on a more intermediate-term basis (over the next 7 to 10 trading days), the longer measures of end of day data have lost upside momentum and are weakening, but they remain at positive levels which means that a short-term drop might not get very far.
To a certain degree, the technicals do not matter when there is a headline of the employment report's magnitude.
It is dangerous to think too deeply about the psychological conditions of the buyers and sellers, but here goes: The markets already know that the Fed intends to raise short-term rates. Higher rates are a "given," so I think that potential buyers will want to see employment figures that offer clear and substantial proof of a robust economy -- if we are going to get the higher rates anyway, let's get some justification that they are warranted. Nonfarm payroll increases which meet or exceed consensus estimates might bring the buyers to the market. I've seen street consensus estimates for gains in the 215,000 to 230,000 range for nonfarm payrolls.
On May 25, 2004, there was a bullish price breakout of a short-term trading range. A measurement of the Nasdaq price range of 1,865 to 1,938 -- 73 points -- added to the 1,938 level equals 2,011; this calculation is how some chartists would create an upside target for the Nasdaq. The same calculation performed on the S&P 500 would equate to an S&P 500 level of 1,136. There has not been sufficient contrary evidence to suggest that these target assumptions are unattainable. There is no time schedule for these targets.
Immediate intraday resistance for the Nasdaq is 1,967-1,981, then 1,989-2,009.11.
Immediate intraday support for the Nasdaq is 1,971-1,957.58. A close below 1,957 would open downside risk for prints 1,934 and lower. Support under 1,957 is 1,934-1,913.73, then 1,918.08-1,899.85, with a shelf of support 1,918-1,914.
Immediate intraday resistance for the S&P 500 is 1,123-1,129.25. The S&P 500's next layer of resistance above 1,129.25 is 1,135-1,149.
Immediate intraday support for the S&P 500 is 1,116.71-1,109.91, with a focus inside this zone at 1,116-1,112.71. The index has a small shelf 1,109.04-1,106.10, then substantial support at 1,100.72-1,090.74.
The potential breakout price targets for the May 25 breakouts are 1,936 for the S&P 500 and 1,911 for the Nasdaq.
Cherney is chief market analyst for Standard & Poor's