By Paul Cherney
On Friday, the S&P 500 satisfied expectations for a close at or above 1215.00 on or before June 30, but the Nasdaq is nowhere near the 2119 level. The Nasdaq should have been taking the leadership role by now (if price patterns of Nasdaq leading in strong runs were to unfold). Now it becomes absolutely essential that retracements are only minor.
Some retracement on Monday would be natural, but it would probably lead to another day of selling if the Nasdaq had a close under 2079.26, or the S&P 500 ended below 1206.95. The benefit of the doubt remains in favor of positive price action unless the markets demonstrate huge volume in a losing session, or close under the price levels mentioned above, then short-term concerns about the loss of the uptrend and more determined profit-taking rise. But that hasn't happened yet. 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 fourth-quarter rally of 2004, but the readings have registered thresholds that make me expect that dips in prices will be viewed as buying opportunities (ultimately) by the markets, but it is not a favorable sign if prices have to move great distances lower to attract buyers.
• Immediate Nasdaq resistance is 2083-2098.53. Nasdaq resistance actually runs 2083-2103.45, next layer above 2103.45 is 2106.19-2116.75.
• S&P 500 resistance is 1205-1217. Next layer is 1221-1229.11.
• When resistances are exceeded they are considered supports until they prove otherwise.
• Nasdaq supports are: minor shelf 2088.18-2085.26, stacked at 2084-2078.34, stacked at 2076-2063. overlapped at 2066-2052.96 which makes the 2066-2063 a focus of support. Usually, with this many layers of minor support, it is difficult for the index to just slice lower, But, if the Nasdaq moves down and prints under 2052.96 level for more than 4 minutes without attracting buyers, then downside risk increases for a drop to test 2043-2027 (not healthy if this were to happen). The index has thick support starting at 2043 and running to 2027. IF prices move lower and test support at 2043-2027, the first test of this area 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 a minor shelf at 1211-1206.95, overlapped at 1208-1200.12 which makes the 1208-1206.95 area a focus of support. Additional support: 1199.11-1191.03, there is a layer of support that overlaps at 1194-1185.19 which makes the 1194-1191.03 area another focus of intraday support.
• There would be great concern for additional price weakness if the index closed under 1185.19, but at this point in the advance I think it would be uncharacteristic of a strong market to see a close under 1191.
• S&P 500 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 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 is the time to move higher or falter. I would not want to see closes below S&P 1191 or Nasdaq 2052 because in my view of the current markets, that would increase the chances that a rebound would be weak.
Cherney is president of Cherney Market Analysis