By Paul Cherney
There are multiple measures of the market that are in configurations which usually precede a short-term lift in prices (more than a day), but it is the market's reaction to the employment report on Friday that should dictate price action for the following 2 to maybe as many as 5 trade days.
The Street expects a gain of 175,000 in nonfarm payrolls.
Here's my view on the impact of the employment report. Keep in mind, we have already dropped for the first 3 trade days of the year, so that should act as at least a partial discounting of bad news if the nonfarm payrolls numbers fails to impress. Whatever the report delivers, if it is received badly by the markets in the pre-opening on Friday, downside might just be a one-day or two-day affair because the markets have already dropped so much this week. I think that if the numbers inspire buying, that would force cautious sideline money into the long-side and produce 3 to as many as 5 or 6 days of net gains.
Longer-term measures of price combined with volume have weakened to neutral readings, but there is usually a lingering positive bias after the kind of lift we saw in the fourth quarter. Some sort of a wave of buying should occur in January, the question to be answered (if there is a wave of buying) is: will a lift in prices draw additional buyers into the markets. An attempt to answer that question can only occur once there is an opportunity to measure the volume and breadth of a move higher. I can't measure the internals of a lift in prices until one occurs, but those measures might afford me some insight into the ability of a lift to followthrough higher.
The seasonal strength for the month of January favors a positive bias for prices.
I reviewed weekly charts for the S&P 500 and it would be a very rare occurrence (by my judgement of charts and indicators), for the S&P 500 to experience a dramatic decline from current levels, But I would become concerned about additional weakness if the index closed below 1,167.
Immediate intraday support for the S&P 500 is 1,184-1,180.40. The next layer of support is a broad band of prices that overlaps at 1,186-1,167 which is why short-term downside is probably limited, because there is so much price traffic in this area.
The Nasdaq has immediate support 2,085-2,052.80 then 2,044-2,025.
S&P 500 resistance is 1,185-1,195 then 1,205-1,209.53. There is more formidable resistance 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: resistance is 1,215-1,226.27.
Nasdaq resistance is 2,097-2,118, then 2,132-2,152, with a stacked shelf at 2,155-2,165. This is within the broader resistance based on 60-minute charts from 2001 (old resistances are not as precise as recent chart action) is 2,153-2,181.05, the index has spent some time above the 2,181 level on an intraday print basis, but has not been able to close above this level. In Monday's session the Nasdaq printed a high of 2,191.60 before the sellers became more aggressive than the buyers. This has set a small shelf of resistance at 2,177-2,191.
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