By Paul Cherney
Friday is the expiration day for August options. The day could be very similar to Thursday's session.
I do think it is dangerous to apply logic to the markets, but there is one observation I need to make: The people who made money in the oil related stocks this week (on balance) were short. The weekend looms, and there is a possibility that energy related stocks could rebound as shorts cover ahead of the weekend.
Both the NASDAQ and the S&P 500 have already had closes below price levels that suggest to me weaker prices for a test of supports S&P 500 1206-1183 and NASDAQ 2106-2076 and unless I see a close in the S&P 500 over 1245 or a close in the NASDAQ over 2195, I will expect some sort of a drift lower. The supports mentioned are not that far from current prices.
I would start to become concerned that my expectations for a drift lower are wrong if the S&P 500 managed to produce a close above 1236.24 or the NASDAQ managed a close over 2174.55, and this is somewhat of a concern. Here's why: First, let me preface by saying I'm not an economist and I don't pretend to be one, but I do try to incorporate fundamental reports into my assessment of the markets: The Philadelphia Fed index was strong today. I think this is a background positive for the markets, especially during the trading days in the fourth quarter.
Right now, we are in the summer doldrums when thin volume can see flat trade or volatile trade. I have already seen prices undercut levels that suggest to me that there should be a drift lower, but at this time I do not think that there can be a big downdraft unless there is a headline of undeniably bearish importance. I still think the markets will drift lower and test the supports mentioned above, but right now I do not think that there can be anymore damage than S&P 500 prints 1206-1183 and NASDAQ prints 2106-2076.
• NASDAQ immediate intraday resistance is a shelf 2146.49-2157.98 (focus 2151-2158). Then 2165-2185.91, resistance gets thick 2177.85 and higher. Anytime immediate resistances are exceeded, they convert to supports until proven otherwise.
• S&P 500 intraday resistance is a shelf 1222-1231.90 with a focus 1222.64-1227.61. Resistance is stacked and formidable at 1229-1239.76. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62, but resistance runs all the way 1245.81. The next focus of resistance above 1245 is 1249.23-1267.
• NASDAQ immediate intraday support is 2135.69-2122.86. The next well-defined layer of support is 2106-2039 with a focus of support 2106-2076 (very strong and should hold if tested).
• The S&P 500 has immediate intraday support in the form a thin shelf 1219-1215. The next meaningful support for the S&P 500 is 1206-1165 with a focus of support 1206-1183 (very strong and should hold if tested).
Cherney is president of Cherney Market Analysis