By Paul Cherney
The advance in the Nasdaq on Friday, Sept. 10, pushed 60-minute measures of buying demand to positive levels that usually mean limited downside. Prices usually continue to move higher after readings like this and I don't mean for just a couple of trading hours. I mean a positive bias for a few days. It does not mean that prices just shoot higher, but over the past 9 months, after readings like this, prices usually move higher and downside is limited.
Nasdaq signals like today's also occurred on Aug. 18, 2004, May 25, 2004, Mar. 29, 2004, and Jan. 2, 2004.
I looked at the price action following these readings in the past and if history repeats, there is probably more on the upside, although recently, the 5 or 6 trading days after similar readings have not been huge moves, but they have seen closing gains.
Below are the dates and then the percent gain to the highest close during the next 6 trade days. History never repeats exactly and there certainly could have been other factors in place, but Friday's 60-minute measures of volume suggests that bulls retain control of the market next week.
January 2, 2004. signal, the highest closing gain in the 6 trading days following the Jan. 2 signal occurred on the sixth trading day. The close on that trading day represented a gain from the close of Jan. 2 of 5.5%.
March 29, 2004. Up 4.3% as of the close on the fifth trading day after the signal.
May 25, 2004. Up 1.6% as of the close on the fifth trading day after the signal.
August 18, 2004. Up 1.7% as of the close of the sixth trading day after the signal.
The first three dates never saw a close below the close on the day of the signal, but after the August 18, 2004 signal, there was a lower close. On the very first trading day after Aug. 18, the Nasdaq fell to an intraday low print that represented a 1.08% loss from the Aug. 18 close. During the afternoon, though prices worked higher and the Nasdaq finished the day with a loss of only 0.44%. (A 1.08% loss from 1,894 the Nasdaq's Friday close -- would be the equivalent of a Nasdaq print at 1,873.) The equivalent print for a 0.44% loss from Friday's close would be a Nasdaq print of 1,885, so these have been the immediate downside risks after similar readings over the past year. If the Nasdaq were to experience a sell-off that sees prices undercut these levels, then the validity of the current signal would brought into question.
S&P 500 support is 1,118-1,113, then 1,110-1,094.
Immediate resistance for the S&P 500 is 1,123-1,130.33, with a focus 1,124.60-1,127.02. This year's June price action established more formidable resistance in the 1129-1146.34 area with a focus of resistance 1132-1140.
Immediate resistance for the Nasdaq is, 1,870-1,896.31. Next resistance is 1,912-1,933.
Nasdaq support is 1,876-1,870, 1,867-1,849 then 1,843-1,819. If the index were to drop and have a close under 1830.30, additional weakness or basebuilding would be expected.
Cherney is chief market analyst for Standard & Poor's