By Paul Cherney
Wednesday's price action was an attempt to establish a base. Short-term, many sellers have been satisfied and the markets are overdue for an oversold bounce, but the levels of negativity registered over the past 10 days (more often than not) usually see the first lift (even 2 to as many as 5 trading days), fail and then prices return to test or undercut the lows that launched the failed rebound.
Technical measures are negative for both the Nasdaq and the S&P 500, but they have lost their downside momentum and the chance for a rebound is more likely now.
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 substantial resistance levels on good volume measures, then an extension higher would be expected.
If the current oversold conditions cannot generate a rebound and prices just continue lower, I would interpret high total total trading volumes as a sign of a short-term capitulation. If I could write the recipe, I would want to see total trading volume for the NYSE to be higher than 1.88 billion, preferably above 1.95 billion. For the Nasdaq 2.47 billion or more. This would be a strong suggestion that many fence-sitting sellers had given up waiting for better prices to exit long positions.
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.
Immediate intraday support for the S&P 500 is 1,179-1,163. The support becomes very thick at 1,177-1,170. If the S&P 500 tests 1,169-1,163 again, some short-covering would be expected. A close below 1,163 would open downside risk for a test of the next layer of support -- 1,147-1,120 -- with a focus of support at 1,142-1,131.
The next well-organized (strong) support for the Nasdaq is 1,981-1,900 with a focus at 1,971-1,954.
The Nasdaq has resistance at 1,993-2,006 and 2,011-2,027 with a focus at 2,016-2,023.67; next resistances are 2,036-2,059 and 2,047-2,069.42, which makes the 2,047-2,059 area a focus of resistance. Additional resistances are directly over the 2,069 level at 2,078-2,093.68 and 2,101-2,111.43.
Immediate S&P 500 resistances are 1,182-1,188, then 1,190-1,194.84, then 1,199-1,210; resistance gets thick at 1,204-1,210.54. There is broad resistance at 1,206-1,229.11, which has a focus of resistance at 1,213-1,219. Above 1,229, the next layer of resistance is 1,240-1,286 with a focus at 1,246-1,261.
Interest in the stock market on the last trading day ahead of the three-day weekend (Thursday) might not be very strong. In 45 years of S&P 500 data, there have only been 3 Thursdays ahead of the 3-day holiday weekend that have generated closing price changes that represented a move of 1% or more (up or down) from the close of the previous day. That means that 93% of the time, the closing change on the day was less than 1% in either direction. In fact, if you looked at price changes for the day, measured in percent change from the previous close, 30 of the last 45 Thursdays in the study (67% of the time) saw a change in price between +0.5% to -0.5%. For the current S&P 500, a change of 0.5% would mean a change in price for the S&P 500 (in points -- not percent change) of just under 6 points for the day.
Cherney is chief market analyst for Standard & Poor's