By Paul Cherney
Volume totals on Fridays or Mondays during the summer months are usually light. It is difficult to understand how total trading volume will be able to act as confirmation of last week's reversal in prices (especially during the expected light trading in August ahead of the next convention), but so far, there have been enough of the right things happening in terms of volume and price that the chances for a base and a small price trend higher still seem more likely than a sharp drop under Monday's lows (the Monday, July 26 lows were 1,829.06, for the Nasdaq and 1,078.78 for the S&P 500). If those lows are undercut, follow-through lower appears inevitable.
For now, I still consider downside to be limited to the recent lows. Bulls should want any retracement over the next couple of trading days to be shallow, and attract buyers that bring volume with them. In my view of the charts it would be better to see buyers come in at S&P 500 prices higher than 1,091, and Nasdaq prices higher than 1,862; this happened on Monday. These prices levels represent 50% retracements of the lift from the intraday low on Monday, July 26, to Friday's intraday highs. The Friday, July 30, intraday highs were Nasdaq 1,896.31, S&P 500 1,103.71. The S&P 500 has already exceeded Friday's high showing that there is interest in buying at higher prices.
I would become concerned about sellers taking short-term control of the markets if there are closes below S&P 500 1,091 or Nasdaq 1,862. But until something like that happens, there is a positive bias in place.
The intermediate term support for the S&P 500 is 1,106-1,076, with a layer of support at 1,085-1,076. Supports are stacked due to the nature of the rise during the fourth quarter of 2003. That rise established thick and well-defined price support at 1,074-1,058.
Observations based on intraday charts: Immediate intraday support for the S&P 500 is 1,103-1,095.82. S&P 500 1,095.47 is like a line of death in the 10-minute charts. The first prints near this level (if there are prints near this level) will probably attract some buyers, bears covering shorts, but then, if there is another move down through this level I would expect a test of 1,090-1,078 with a focus of support 1,086-1,082.
Intraday chart observation: For the Nasdaq, there is support starting at 1,877 and running through to 1,858.24. A price level of short-term concern would be prints 1,867.62 or lower. More than 4 minutes below this level increases intraday downside risk for a test of 1,854-1,836.
Support for the Nasdaq is 1,884.53-1,876.31. Support for the Nasdaq is 1,876-1,858, stacked at 1,860-1,829.06. The next focus of support is 1,815-1,792.
Immediate resistance for the S&P 500 is 1,103-1,109.30, 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37. Well-defined intraday resistance is 1,123-1,130.33 with a focus at 1,124.60-1,127.02.
Immediate intraday resistance for the Nasdaq is a small shelf at 1,886-1,896.31. Well-defined resistance does not come until 1,903-1,933, with a focus at 1,909-1,918.
These markets might just trade sideways, limited by Nasdaq 1,829 on the low end and 1,933 on the high end and the S&P 500 limited by 1,078 on the low end and 1,130 on the high end.
Any time resistances are exceeded they must be treated as supports until proven otherwise. Any time supports are undercut they must be treated as resistance until proven otherwise.
Cherney is chief market analyst for Standard & Poor's