The Fed Hangover

Breadth and volume measures have gotten so bad that usually, under these conditions, prices can get worse before they get better

By Paul Cherney

I was wrong about an oversold rebound on Tuesday. The Fed left the word "measured" in their post meeting statement, but traders and investors appeared upset by the sentence: "Though longer-term inflationary expectations remain well contained, pressures on inflation have picked up in recent months and pricing power is more evident."

Technical measures are negative for both the NASDAQ and the S&P 500.

The NASDAQ appears destined to test well-defined support 1981-1900. This area of the chart has a thick layer of price traffic (support) 1971-1954. But any prints 1981 or lower look like a natural spot for bears to cover aggressively and bargain hunters to step in.

Immediate intraday support for the S&P 500 is 1179-1163. The support becomes very thick 1177-1170. If the S&P 500 tests 1169-1163, the lower edge of support, some bears might use that as a cue to take short-sided profits (buy to cover outstanding short positions), but it will take a demonstration of strength on a rebound to suggest upside for more than just a couple of trade days. These markets might have to establish some sort of a base. A close below 1163 would open downside risk for a test of the next layer of support 1147-1120 with a focus of support 1142-1131.

Right now, the markets have NOT demonstrated the ability to inspire aggressive buying at higher prices and that can mean that there are still sellers who need to be satisfied. Some of those sellers were satisfied on Tuesday, but over the past 10 trade days, breadth and volume measures have gotten so bad that usually, under these conditions, prices can get worse before they get better and the first lift attracts sellers not buyers.

These markets are short-term oversold and a bounce can happen any day, whether that bounce can attract enough buyers with a time horizon longer than just a few trade hours is the question yet to be answered.

I think there are still sellers left to be satisfied, but if we get a bounce and the markets can generate signs of strength, like breaking above resistance levels on good volume measures, an extension higher would be expected.

The NASDAQ has resistance 1993-2006 and 2011-2027 with a focus 2016-2023.67, next resistance 2036-2059 and 2047-2069.42 which makes the 2047-2059 area a focus of resistance. Additional resistances are directly over the 2069 level at 2078-2093.68 and 2101-2111.43.

Immediate S&P 500 resistance 1182-1188 then 1190-1194.84, then 1199-1210, resistance gets thick 1204-1210.54. There is broad resistance 1206-1229.11 which has a focus of resistance 1213-1219. Above 1229, the next layer of resistance is 1240-1286 with a focus1246-1261.

The next well-organized (strong) support for the NASDAQ is 1981-1900 with a focus 1971-1954.

Cherney is chief market analyst for Standard & Poor's

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