By Paul Cherney
I think it would be natural to have a little more downside at the beginning of next week, but the measures of price momentum and volume momentum (up volume versus down volume) achieved over the last 2 to 3 weeks keep my expectations tilted to favor that the short-term profit-taking will find a floor and then prices will rebound.
Historically, when the Nasdaq is outperforming the S&P 500, both indexes benefit, and that is the case right now, but I think we have entered a window of time when short-term profit-taking in the Nasdaq creates a condition of relative out-performance by the S&P 500, that could be the case over the next couple of trade days. Relative strength/relative out-performance does not necessarily mean that the S&P 500 will gain more on a percentage basis relative to the Nasdaq, relative strength/relative out-performance can simply mean that the S&P 500 does not decline as much as the Nasdaq, which was the case on Friday.
The price and volume action of the past few weeks has exhibited positive readings for price and volume that usually mean there is an underlying willingness to buy. The first retracement should attract buying interest for a rebound. I do start to become concerned about being wrong about the willingness to buy short-term dips in price when or if the Nasdaq posts a close that represents a loss of 2.5% from its highest close. For the current market, that would be equivalent to a Nasdaq close under 2,045, but I have to add that markets are not obliged to comply with my expectations for performance, I also like to employ observations of chart support and in my view of the Nasdaq, the key chart support is 2,042-2,027. So, even if there is a close under Nasdaq 2,045, the key chart support for the Nasdaq is 2,042-2,027 and this is the area that is most likely to attract buyers (if prices were to move that low).
Immediate intraday support for the Nasdaq is currently being tested; that support is 2,076.80-2,067.23. If the index spends more than 4 minutes below 2,067.23 without attracting buyers to push prices higher, I think that would increase the chances for additional short-term downside and a test of a shelf of support at 2,057-2,050.
The S&P 500 has numerous layers of support and it is usually difficult for markets to just slice through layers of support like this.
Immediate intraday support for the S&P 500 is 1,197.39-1,191.03; there is a layer of support that overlaps at 1,194-1,185.19, which makes the 1,194-1,191.03 area a focus of intraday support.
There would be some concern for a short-term shake-out if the S&P 500 spent more than 4 minutes below the 1,185.19 level, but supports are stair-stepped and stacked, offering numerous price levels to entice buying participation. The support of 1,194-1,185.19 is overlapped at 1,187-1,180.87 which creates another focus of support 1,187-1,185.19. A move below 1,180.87 would not be healthy, and could ignite some fear-driven selling, the next layer of substantial support, though, is directly underneath 1,180.87 at 1,178.87-1,165.
I still expect that sometime over the next 19 trading days, there should be an S&P 500 close at or above the 1,215.00 level and a Nasdaq close at or above 2,119. Every day the markets deliver new information that either confirms or contradicts assumptions in place: so far, I have not seen anything to cause me to second guess this assumption.
Cherney is president of Cherney Market Analysis