By Paul Cherney
On Friday, the March employment report will be delivered. The Street expects a gain of 220,000 nonfarm payrolls. Now that the markets are worried that the Fed might raise rates more aggressively in reaction to signs of inflation or economic strength, a stronger than expected nonfarm payrolls number might generate some selling in the stock market. That would be what I would expect to see, initially, in reaction to a huge headline gain. Eventually though, sometimes intraday, sometimes after a couple of days, the Street spin can turn to the rational, that the Fed wouldn't be raising rates if the economy wasn't strong and if the economy is strong, corporate profits will benefit.
Weaker than expected nonfarm payrolls might be greeted by the markets as a short-term inspiration to buy.
These technical observations remain valid: No two markets are ever exactly the same, but after reviewing similar technical conditions in the past 8 years, I expect the current lift to run out of momentum and then retest and slightly undercut the lows established on Tuesday. But, I would start to doubt those concerns if the employment report ignited buying that pushed the S&P 500 up for a close over 1,193, or the Nasdaq above 2,027. No real reaction to the employment report might see the markets just moving sideways, in that event, I would no longer expect a retracement that undercuts if either of the indexes has two closes above their respective 20 period exponential moving average. The 20 period exponential moving average for the S&P 500 is 1,186.32, for the Nasdaq it is 2,017.90.
The Nasdaq has immediate support at 1,995-1,982.10. There is a focus of support in the 1,971-1,954 area and even with a failed rebound, I would expect this area to support a retracement. The 1,971-1,954 focus of support is inside the broader immediate support of 1,981-1,900.
Immediate support for the S&P 500 is 1,179-1,160.52. The S&P 500 has a concentration of support at 1,169-1,163. If the index were to have a close under 1,160.52, in my opinion, that would open downside risk for a test of the next layer of support -- 1,147-1,120 -- with a focus of support 1142-1131.
The Nasdaq has resistance at 1,986-2,008.63, stacked and well-defined at 2,006-2,017.66, making a focus of resistance 2,006-2,008.63 a focus of resistance. A close above 2,008.63 should force a wave of buying at the open on the following trading day. Nasdaq prints 2,016 through 2,027 are thick with resistance and the first move into this area (if there is a move into this area) is likely to be repelled unless it is accompanied by a headline that virtually everyone recognizes as bullish. 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 1,183.78-1,188.40 (generated ahead of the FOMC announcement on Tuesday, Mar. 22). 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 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.
Cherney is chief market analyst for Standard & Poor's