By Paul Cherney
Can the current rebound continue higher and create a new trend? It is possible to see a little more to the upside on this lift, especially if oil can move lower again on Tuesday, Aug. 17, but the overnight systems run on Friday, Aug. 13, produced signals that tilt the odds to favor that a short-term rebound in prices will not be able to attract sufficient follow-through to create a meaningful trend and that a period of basing would be natural. Other technical measures might trip over the next few trade days, but for now, I assume no significant follow-through higher. I would be forced to change this opinion if equity prices exceeded resistance levels on good volume.
As for the Monday, Aug. 16, session: Mondays and Fridays in the summertime can see prices trade with meaningless volume levels, so it is almost irresponsible to make any volume conclusions from Monday's action. Tuesday might offer more substantive readings.
The economic reports on Tuesday will be a real test of the impact of one day of lower oil prices. The economic reports of late have shown weakness, not strength. On Monday, the New York State's Manufacturing index dropped to 12.6 from July's 35.6 but the markets were able to ignore that because of the weakness in crude oil. On Tuesday, if crude fails to fall further and the reports on the economy are weak, equity prices will not have very much to inspire buying.
Immediate intraday resistance for the Nasdaq is 1,785-1,798.52 and 1,793-1,808.70. There is a price gap in the Nasdaq 60-minute charts that is still open from 1,786.65 to 1,798.52, There is another price gap at 1,808.70-1,820.21. Gaps are natural chart points for prices to pause. But if the Nasdaq could move above and close above the 1,820.21 level, that would be an encouraging sign to bulls.
The immediate resistance for the S&P 500 is 1,082-1,089.66.
Intermediate term indicators are very close to oversold readings that often produce a bounce that lasts for more than just a day, but it is the internal measures in the next few trade days that might offer some indication of the ability of the markets to put more than just one or two trade days of gains together.
The Nasdaq index has immediate intraday support at 1,781.54-1,770.51, then 1,764-1,751.95. The intermediate term support is 1,776-1,600 and thick price traffic 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 intraday support is 1,075-1,070.33. It would be a sign of short-term weakness to see prints last for more than 4 minutes below the 1,070.33 level. Next support is 1,067.78-1,060.91. This is well-defined support. Additional S&P 500 support is 1,046-1,030, with a focus at 1,060-1,046.
Besides the intraday resistance mentioned above, additional resistance levels for the S&P 500 are 1,086-1,092, then 1,103-1,109.30.
The CBOE volatility index, or VXO, is probably going to have to move below 16.90 to offer substantive confirmation of any intraday move higher on Tuesday.
Cherney is chief market analyst for Standard & Poor's