By Paul Cherney
I think the markets (short-term daily basis) might have run out of sellers for the time being. Sixty-minute measures are in configurations that usually are followed by a day of gains. There would have to be additional improvement for me to expect anything more than 4 to 8 trading hours of positive price action, but for now, there is enough evidence for me to guess closing gains for tomorrow. But an uninterrupted trend higher looks doubtful right now.
Tuesday's price action produced a yellow flag of caution for the Nasdaq. This signal can be reversed, rendered a "failure" if, over the next 5 trade days, there is a big improvement in the buying demand versus the selling pressure (end of day measures of Nasdaq up volume outpacing down volume on the order of 4 or 5 to 1), but if that does not occur, the pattern is: 1) an oversold bounce, sometimes lasting as many as 3 or even 5 trade days -- Wednesday was day one, 2) failure to attract followthrough buying, 3) drift lower that undercuts recent swing low and then basing.
Since we are in the earnings season, there will be plenty of company headline opportunities to generate lopsided days of buying or selling and they have the potential to confirm or contradict the yellow flag of caution.
The best thing the markets can do to bolster bullish confidence is to break above and close above resistance levels. I think a move and close above the intraday highs from Monday would be a short-term positive. Monday's intraday highs were: Nasdaq 2,111.43, S&P 500 1,194.78.
The markets are waiting for a headline to generate a reaction (bullish or bearish).
Immediate intraday supports for the S&P 500 is 1,184-1,180.40. These prices are inside a layer of support that overlaps at 1,186-1,167, really all the way down to 1,160.36, which is why short-term downside is probably limited, limited because there is so much price traffic in this area. On Wednesday, the index printed a low of 1,175.64. Next support under 1,160.36 is 1,142.05-1,090.19.
There are multiple layers of support for the Nasdaq, too. Immediate intraday support for the Nasdaq at 2,096-2,076.69 was undercut intraday on Wednesday, but buying was eventually able to lift prices. The intraday low was 2,066.79. The index also has a layer of support 2,085-2,052.80.
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 starts at 2,087 and gets thick at 2,097-2,118. (2,111.43 is a specific price point of importance, a close above this level would be a short-term positive.) Next resistance is 2,132-2,152, with a stacked shelf at 2,155-2,165.
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