By Paul Cherney
Longer-term measures of momentum of price and volume remain at levels that usually mean retracements are shallow in depth and short in duration. These measures have weakened but remain above thresholds that would increase the chances (in my opinion) of lower prices.
We are entering the last few trading days of the year when thin trading volume means just a handful of like minded traders or institutions can force prices in one direction or the other.
I don't present the following observations as statistically valid studies, I present them as chronicles of what has happened in the past.
I have reviewed historical price action for the last five trading days of the month of December and there is a very strong historical precedence for higher prices for both the Nasdaq and the S&P 500.
For the purpose of these observations, I am referring to the last 5 trading days of the year, meaning "long" as of the close of the sixth trading day before the end of the year and then selling as of the close of the last trade day of the year.
The S&P 500 has gained ground during this period of time 78% of the time 1958 through 2003. The Nasdaq has gained ground in the last five trading days of the year 92% of the time (1978 through 2003 data).
This year, the sixth trading day before the end of the year is Thursday, Dec. 23 (the markets are closed Friday, Dec. 24).
S&P 500 support at 1,195-1,185 is well-defined (strong) and I expect it to hold if tested again. This area should act like a platform for prices to move higher in the last five trading days of the year. S&P 500 support is stacked at 1,184-1,180.40, but I would start to doubt my expectations for strength into the end of the year if the S&P 500 had a close below 1,193.36 (regardless of the fact that the immediate support runs to 1,185).
The Nasdaq has supports at 2,143-2,132 then 2,130-2,122, stacked at 2,118-2,097.86 with support thickening at 2,113-2,105. I would start to think I was wrong about strength into the end of the year if the Nasdaq had a day where it closed below 2,124.00 (regardless of the fact that support runs to 2,122).
S&P 500 intraday resistance is 1,204.39-1,209.26.
Nasdaq intraday resistance is 2,154-2,171.27.
The resistance the S&P 500 is testing is old, from July, 2001. The older the resistance, the less precise you can be, but here is the read from the 60-minute charts from July and August of 2001: Immediate shelf of resistance is 1,195-1,209.26, then another layer of resistance at 1,215-1,226.27.
Nasdaq resistance based on 60-minute charts from 2001 (old resistances are not as precise as recent chart action) is 2,153-2,181.05, then 2,202-2,264.48, and stacked/overlapped at 2,226-2,328.05, which creates a focus of strong resistance at 2,226-2,264.48.
Stacked supports and/or stacked resistances mean there are multiple price points that appeal to both buyers and sellers and sometimes prices can spend a lot of time just moving sideways.
Anytime resistance is exceeded it must be treated as support until broken. Anytime supports are broken they must be treated as resistance until exceeded.
Cherney is chief market analyst for Standard & Poor's