By Paul Cherney
Price, volume and breadth measures have not broken down yet, so I have to maintain a positive bias. My question is: Once we move into August, and the earnings reports start to dwindle, what's left to drive prices higher?
There are many potential headlines that could drive prices higher on Friday. Lately, the markets have been feeding on signs of strength, so expect gains again if any of the following reports can deliver strong numbers. Scheduled for release are advanced second-quarter gross domestic product (GDP), the employment cost index (ECI) for the second quarter, and the Chicago PMI. Also scheduled is the University of Michigan final revision for July's consumer sentiment, but this is a final revision and it often has no impact.
On Friday, a strong advanced release of second-quarter GDP could help push stock prices higher. I am not an economist, but this report probably cannot be taken at face value because a draw-down in inventories will subtract from the headline number (some investors like to see that kind of a move in inventories because it can mean that production might have to ramp up to replace inventory). The report will also contain benchmark revisions going back 3 years, so the markets (and economists) might have to spend a little time looking at the data. For the headline number, the Street expects about 3.5%.
There will also be the ECI, which is expected to rise 0.8% or 0.9%.
Chicago PMI for July is expected to be 55.0. Stronger numbers have been embraced by the markets.
I am maintaining my positive view for prices, but I would become concerned that a shift toward profit-taking would probably be in place if the NASDAQ posted a close under 2165.44. The index has a focus of support 2167-2165.44. This area has been tested several times and has held, so it has become an important layer of support because these prices are where buyers have consistently bought the market and pushed it higher. If there is a NASDAQ close below this area, that would suggest to me that a shift in sentiment has occurred (because people were not willing to buy at these levels).
For the S&P 500, I would become concerned about a shift in sentiment if the index posted a close below 1219.80.
IMMEDIATE INTRADAY RESISTANCES
• NASDAQ immediate resistance is 2205.54-2264.58 with a distinct layer of resistance 2211-2249, focus 2211-2233.33.
• S&P 500 intraday resistance is a focus of resistance 1249.23-1267, This area looks like a natural stopping point to me, but the markets would have break supports or issue some other technical evidence of weakness to suggest that this area was a top. Prices might move into this zone and just amble sideways.
IMMEDIATE INTRADAY SUPPORTS:
• NASDAQ support: 2193-2186, 2175-2165.44 overlapped at 2167-2144.78.
• S&P 500 has immediate intraday support at 1239.04-1230, overlapped at 1231.79-1223.03, which creates a focus of support 1231.79-1230.00.
• S&P 500 resistance is 1232-1286.62 with a focus of resistance 1249.23-1267.
• NASDAQ daily charts resistance above 2193.19 becomes thick 2263.75-2328.05.
Cherney is president of Cherney Market Analysis