By Paul Cherney
On Tuesday, the May producer price index will be released at 8:30 a.m. ET. Street expectations for the PPI vary quite a bit, ranging from a drop of 0.2% to a drop of 0.5%.
Monday's price action did not considerably alter the technical conditions of the markets. It was a Monday in the summertime and volumes are usually low. Short-term, the markets are trying to consolidate some of the gains achieved since April. Strong markets do not have to move lower to attract buyers, so it is not the greatest of signs if prices have to move lower to attract bargain hunters. I would not view it as a sign of healthy buying interest if the Nasdaq had a close below 2027 or the S&P 500 had a close below 1185.
This is still the case: the current markets have demonstrated price and volume action that usually mean that there is an underlying willingness to buy. The measures of buying and selling pressure I keep (up volume versus down volume) are nowhere near the levels of strength exhibited in the fourth-quarter rally of 2004, but the readings have registered thresholds that make me expect to see closes higher than those in place.
I become concerned about being wrong about the willingness to buy short-term dips in price when and 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 2045. I also like to employ observations of chart support and in my view of the Nasdaq, the key chart support is 2042-2027. So, even if there is a close under Nasdaq 2045, the Key chart support for the Nasdaq is 2042-2027 and this is the area that is most likely to attract buyers (if prices were to move that low).
Immediate Intraday Resistances:
• Immediate Nasdaq intraday resistance 2069.04-2078.94, inside this zone there is a focus of resistance 2073.97-2077.74.
• S&P 500 immediate intraday resistance is a small shelf 1202.26-1203.92. This is within resistance 1200.52-1204.96. Next well-defined resistance (intraday is 1206.56-1208.85.
• When resistances are exceeded they are considered supports until they prove otherwise.
• Nasdaq: The Nasdaq has unorganized, weak resistance 2075-2078.94. The next, more important resistance is 2083-2097.80 with an especially well-defined resistance 2089-2095.96. Nasdaq resistance actually runs to 2072-2103.45, next layer above 2103.45 is 2106.19-2116.75.
S&P 500: resistance includes 1200.52-1204.96. Resistance gets thick 1206.56-1208.85. The bigger picture for S&P 500 resistance is 1205-1217 with a focus 1211.23-1215.58. Next layer 1221-1229.11.
• Nasdaq supports are: 2066-2052.96. If the Nasdaq undercuts the 2052.96 level for more than 4 minutes without attracting buyers, downside risk increases for a drop to test 2043-2027. The index has thick support starting at 2043 and running to 2027. IF prices move lower and test support at 2043-2027 this area on the chart should attract buyers for a rebound. Whether that rebound attracts enough follow-through to push prices above recent highs can only be assessed when the levels of participation in the rebound are measured.
• 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 1199.11=1197.86, stacked at 1197.39-1191.03, there is a layer of support that overlaps at 1194-1185.19 which makes the 1194-1191.03 area a focus of intraday support.
• There would be some concern for a short-term (one day, or intraday) shake-out if the S&P 500 spent more than 4 minutes below the 1185.19 level, but supports are stair-stepped and stacked, offering numerous price levels to entice buying participation. The support of 1194-1185.19 is overlapped at 1187-1180.87 which creates another focus of support 1187-1185.19. A move below 1180.87 would not be healthy, and could ignite some fear driven selling, the next layer of substantial support, though, is directly underneath 1180.87 at 1178.87-1165. I still expect that sometime over the next 13 trade days, there should be an S&P 500 close at or above the 1215.00 level and a Nasdaq close at or above 2119.
I would not want to see more than one close below S&P 1185 or Nasdaq 2027 because in my view of the current markets, that would increase the chances that a rebound would not be able to exceed the recent closing highs.
Cherney is president of Cherney Market Analysis