By Paul Cherney
Intraday on Friday, Aug. 13, 60-minute measures of volume improved to levels that are just shy of thresholds that shift odds to expect higher prices. I think there can easily be upside on Monday. I expect it. Think about it: Crude oil closed at $46.58 at Friday -- up $1.08 -- but stocks did not plunge. I have to interpret that as a positive for stocks, short-term.
The stock markets hate uncertainty and the dominant theme since the beginning of July has been the fear that higher oil prices will choke off the economic recovery. There have been four major producers of headlines that have affected the price of oil this week: 1) Iraq; 2) Yukos; 3) the Venezuelan vote this weekend; and 4) Hurricane Charley shutting down the platforms in the Gulf of Mexico. These four sources of headlines have been drivers of higher oil prices, but two of these sources will no longer represent uncertainties come Monday. By Monday, Hurricane Charley (more than likely I have to guess) will have moved out of the Gulf, and the Venezuelan vote will be over. This creates high potential for a drop in oil prices next week, and that could be the catalyst for a short-term rebound in stock prices.
Immediate intraday resistance for the Nasdaq is 1,760.60-1,768.63, S&P 500 1,066.99-1,071.21.
Intraday resistances are stacked: Nasdaq 1,769.72-1,774.68, S&P 500 1,071.90-1,073.73.
A shakeout might offer the bears a more profitable exit from short positions and that could be a catalyst for a short-term bounce but a drop in oil prices would force short covering, too.
Intermediate term indicators are very close to oversold readings that often produce a bounce, but it is the internal measures in the trading days after the bounce that might offer some indication of the ability of the markets to put more than two trading days of gains together. So far, I have no readings suggesting that there is valid accumulation taking place. The best way I can describe the current volume measures is to say that the ranks of the sellers are thinning, but the buyers have not started to charge into the market with buy orders in hand.
The Nasdaq index has two immediate concentrations of support inside the longer-term layer of support of 1,776-1,600. They are 1,744.60-1,675 and 1,771-1,734. This makes the 1,744.60-1,734 area a focus of support.
S&P 500 support is 1,046-1,030 with a focus 1,060-1,046.
There are two gaps in the Nasdaq's charts (intraday bars) 1,786.65 to 1,801.88 and 1,806.28-1,820.21.
Besides the intraday resistance mentioned above, additional resistance levels for the S&P 500 are 1,075.85-1,079.04, then 1,086-1,092, then 1,103-1,109.30 and 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37.
The one problem with the summertime is that Mondays can see slack volume as people extend weekends and the real participation might not come until Tuesday. I think the markets are ripening for a short-term rebound.
Cherney is chief market analyst for Standard & Poor's