By Paul Cherney
I was wrong about sideways trading with a negative bias for Thursday, Nov. 4, ahead of the Nov. 5 release of the October employment report. The drop in oil prices Thursday helped stock prices move higher. The end-of-day measures of price and volume momentum continue to look positive for prices.
The S&P 500 has broken above the upper edge of the downtrending channel of the past 10 months and prices for both the Nasdaq and the S&P 500 are extended and short-term overbought. But a strong nonfarm payroll number in the October jobs report could create a wave of buying that would probably represent a short term capitulation of buyers and might be a set-up for some consolidation next week (all perfectly natural without eliminating the potential for even higher prices).
The Street expects big gains in the October nonfarm payrolls number, something on the order of 175,000 to 200,000.
Longer-term end-of-day momentum measures remain positive and the advance of the past nine trading days has created a positive momentum that usually has residual effects on prices, meaning, even if there is a day or two or three of consolidation. A weaker-than-expected nonfarm payrolls number might prompt some profit-taking that pushes prices lower, but until or unless the S&P 500 closes under 1,130.54, I would expect that short-term retracements will attract buyers. A similar price level for the Nasdaq would be 1,992.70.
The Nasdaq is testing a broad band of resistance at 1,960-2,055. Immediate resistance for the Nasdaq is 2,017-2,039, with a focus of resistance 2,030-2,039. The next resistance for the Nasdaq overlaps at 2,049-2,094, and that makes the 2,049-2,055 area another focus of resistance.
The S&P 500 is at the upper edge of a layer of resistance at 1,147-1,163.23. In reviewing charts from the end of 2001 and the beginning of 2002, (the older the charts are, the less valid the support and the resistance), the index has overlapping resistance 1,151-1,176.97. Next resistance is thick 1,185-1,226.
Immediate supports are now S&P 500, 1,150-1,127, Nasdaq, 2,008-1,992.
Cherney is chief market analyst for Standard & Poor's