By Paul Cherney
There are multiple reports to be released on Wednesday including May CPI, May industrial production & capacity utilization, and April business inventories. And, at 2:00 p.m. ET, the Fed's Beige Book.
The CPI and the Beige Book might be the focus of traders attention. The markets want signs of reduced inflationary pressures (to take pressure off the Fed). On Wednesday, May CPI will be released at 8:30 a.m. ET. The Street expects the headline CPI to have risen 0.1%, with the core index (which excludes volatile food and energy prices) up 0.2%.
We all know that prices can't just move sideways forever and maybe reactions to one of the reports mentioned above can push prices in a direction other than sideways. This is the week of the quarterly expirations (formerly known as the Triple Witch), and volatility rarely happens on the actual day of the expiration anymore, so Wednesday and Thursday have some potential to see a move out of the 5-day trading range.
The Nasdaq's 5-day trading range has been bounded by 2078.26 on the upside and 2052.96 on the downside.
The S&P 500's 5-day trading range has been bounded by 1207.53 on the upside and 1191.09 on the downside.
Where to now? I don't think the markets have exhausted the upside yet, but I do recognize that a short-term shake-out could happen in reaction to headlines. I'll watch the ranges and expect that if there is a break lower, that it will ultimately be viewed as a buying opportunity.
The technical condition of the markets remains the same as it was on Monday. Short-term, the markets are consolidating 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. Important supports have not broken, they have not even been tested. There is still potential for higher prices without a retracement. 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.
The measures of buying and selling pressure I keep (up volume versus down volume) are nowhere near the levels of strength exhibited in the fourt-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 at 2073.97-2077.74.
• S&P 500 immediate intraday resistance is a small shelf at 1202.26-1203.92. This is within resistance at 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 at 2075-2078.94. The next, more important resistance is 2083-2097.80 with an especially well-defined resistance at 2089-2095.96. Nasdaq resistance actually runs to 2072-2103.45; the next layer above 2103.45 is 2106.19-2116.75.
• S&P 500: resistance includes 1200.52-1204.96. Resistance gets thick at 1206.56-1208.85. The bigger picture for S&P 500 resistance is 1205-1217, with a focus at 1211.23-1215.58. The next layer is 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) shakeout 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 at 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 12 trading days, there should be an S&P 500 close at or above the 1215.00 level and a Nasdaq close at or above 2119, but 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