By Paul Cherney
This is regular monthly option expiration week. There was relatively high trading volume on Thursday and I think that creates the potential for a rebound from intraday lows on Friday. But there simply is not enough evidence right now to suggest that the current short-term downdraft is over.
In my view of the charts, the S&P 500's close below 1,963 has increased the chances for a test of the next immediate layer of support at 1,147-1,120. That does not have to happen on Friday. There is no time schedule for this potential event. There is a focus of support doe the index at 1,142-1,131.
The Nasdaq composite index has had a close below the lower edge of its trading range and this has opened downside risk for a test of 1,944-1,925. There are two layers of support which were established in September and October of 2004: 1,971-1,899.33 and 1,925.85-1,852.59. The overlap is 1,925.85-1,899.33 and this represents very strong support, but inside the first layer, the 1,971-1,899.33 area, there is especially thick support at 1,944-1,914 and if prices were to reach this area I think the shorts would be viewing it as a likely spot to do some covering.
So if there is opening weakness on Friday, Nasdaq prints of 1,944 and lower should create some buying interest among short-term bears, especially ahead of a weekend. I think it would be better to see some selling at the open, and as long as there is not a headline of undeniably bearish importance, then short-covering should start at 1,944 and lower. If the markets are moving higher at the open, I think it would take a move above 1968.03 for the Nasdaq to force a scramble to cover which would probably be aided by bargain hunting.
Immediate intraday resistance for the S&P 500 is 1,167-1,174.62, stacked at 1,177-1,186.37. The next meaningful resistance is the top of the former trading range at 1,190-1,193.28.
The entire former trading ranges now represent resistance, so that means the broad resistance is 1,163-1,193.28 for the S&P 500 and 1,968-2,021.82 for the Nasdaq.
Immediate intraday resistance for the Nasdaq is 1,955-1,968.03, then 1,981-2,001.07. The Nasdaq has additional resistances at 2,006-2,008 and 2,006-2,014.31. The next important resistance is 2,017-2,027; resistance in this area thickens with prints of 2,023.00 and higher.
Cherney is chief market analyst for Standard & Poor's