By Paul Cherney
The markets are trying to establish a base. Short-term, many sellers have been satisfied and the markets are overdue for a 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.
Even though the S&P 500 has had a minor close under Wednesday's close, a bounce would still be natural. If during that bounce, the NYSE can generate a minimum of 1.73 billion shares traded for 2 out of the next 3 trading days, that would start to erode concerns about about a failed bounce and a retracement that undercuts the swing low from today.
The picture is simply not that clear for the Nasdaq because Wednesday's total trading volume was not even close to levels that might suggest borderline cases of capitulation, for the Nasdaq I like to see a minimum of 1.25 times the 50-day simple moving average of volume, and when I calculated that for Wednesday's market, that number was 2.47 billion shares and there were only 1.75 billion traded on Wednesday.
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 still in place, whether that rebound 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 and maybe we will have to see a fear-driven sell-off that produces capitulation style selling volume and then reverses intraday to close at or near the open for the day. 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.
For me, capitulation style volume for the NYSE would be over 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 and had simply capitulated to the sell-side of the fence.
Immediate intraday support for the S&P 500 is 1,179-1,163. The support becomes very thick 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 1,142-1,131.
The next well-organized (strong) support for the Nasdaq is 1,981-1,900 with a focus 1,971-1,954.
The Nasdaq has resistance at 1,993-2,008.63, stacked and well-defined at 2,007.25-2,017.66. This 2,007.25-2,017.66 area was the sideways travel on Tuesday before the FOMC announcement. Prints 2,016 through 2,027 are thick with resistance. 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.
The S&P 500 has immediate resistance at 1,178.82-1,189.50, there is a particularly well-defined layer of resistance at 1,183.78-1,188.40 (generated ahead of the FOMC announcement on Tuesday afternoon). Next resistances are 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 1,213-1,219. Above 1,229, the next layer of resistance is 1,240-1,286 with a focus 1,246-1,261.
Based on S&P 500 data from 1960-2004, the Monday following Easter has been a gainer only 17 out of 45 years or 37.8% of the time.
Even though the beginning day of the week after Easter historically has lost ground more often than moved higher, by the end of the week, the S&P 500 has been higher 58% of the time. This year the extremely oversold conditions of the markets suggests a strong rebound in prices during the week after Easter is very possible.
Cherney is chief market analyst for Standard & Poor's