By Paul Cherney
I think it would take a big headline to force volatility on Friday. Quarterly expirations used to be fraught with volatility, but for years now, the price volatility usually happens during the week of expirations, not on the Friday of expirations. Typically there is a surge in volume at the open as the powers that be try to influence the opening prices of stocks (for the special futures settlement price), but then, after the first 30 or 40 minutes of trading, prices can spend most of the rest of the session meandering sideways until the last hour of trade when a little more price movement can occur.
I think the markets are at critical levels and if there is going to be more upside, now is the time for the Nasdaq to reclaim a leadership role. The markets have spent plenty of time moving sideways over the past 3 weeks and now it is time to move higher or fail. I would not want to see any closes below S&P 1185 or Nasdaq 2041.95 because in my view of the current markets, that would increase the chances that a rebound would not be able to exceed the current price level for the S&P 500, or the recent June 2, 2005 close for the Nasdaq of 2097.80. Friday can see sideways, Monday can see some retracement, but if the price levels mentioned above are undercut on a closing basis, then they turn the entire sideways price action of the past 3 weeks into resistance and I consider tight, lateral price traffic to be strong resistance once it is undercut.
This is still the case: The measures of buying and selling pressure I keep (up volume versus down volume) are no where near the levels of strength exhibited in the Q4 rally of 2004, but the readings have registered thresholds that make me expect to see closes higher than those in place.
• Immediate Nasdaq 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 is 1205-1217 with a focus 1211.23-1215.58. Next layer 1221-1229.11.
• When resistances are exceeded they are considered supports until they prove otherwise.
• Nasdaq supports are: minor shelf 2084-2078.34, stacked at 2076-2063. overlapped at 2066-2052.96 which makes the 2066-2063 a focus of support. 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 (not healthy if this were to happen), but not a death knell either, unless there is a close below 2041.95. 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 1208-1200.12 stacked at 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 additional price weakness if the index closed under 1185.19, 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 10 trading days, there should be an S&P 500 close at or above the 1215.00 level. But, as mentioned above, if this is going to be a strong run higher, then it is time for the Nasdaq to reclaim its leadership role. Strong markets do not have to move lower to attract buyers. I think it would be unhealthy to see any close below S&P 1185 or Nasdaq 2041.95.
Cherney is president of Cherney Market Analysis