By Paul Cherney
It was the trend higher in crude oil and gasoline futures that hurt the markets, but now profit-taking has entered the energy commodities. Under these circumstances, equity indexes should benefit.
I still do not think that the indexes can generate a significant run higher (a trend) at this time, but additional upside appears likely in the short-term. There is a short-term positive bias in place and my measures of momentum for the broader indexes (Russell based) are positive.
The Nasdaq has had a close above the 2158 level, and some follow-through higher is expected. If the index produces a close above 2185.91 I would view that as another positive development.
I was wrong about the ability of the S&P 500 to close above the 1228.96 level. (I didn't think it would.) This was the product of flawed logic. It is dangerous to apply too much logic to the markets, I erroneously made the assumption that the profit-taking in energy futures would force profit-taking in the energy related sectors. One of the interesting aspects of Tuesday's session was that even though the energy futures saw profit-taking, the energy sector and the oil services stocks finished the day higher, perhaps a sign that even though the futures saw profit-taking, the secular story for higher prices remains the mantra for longer-term investors.
At this time I do not think that support at S&P 500 1206-1183 will break. I do not think that Nasdaq support at 2106-20756 will break. These price levels should provide a bounce if tested and I do not expect them to be tested in the short-run.
I am no longer concerned (short-term) with seeing some sort of a definitive sign of absolute capitulation for the equity markets.
• The Nasdaq has resistance 2165-2185.91, resistance gets thick 2177.85-2185.91. Anytime immediate resistances are exceeded, they convert to supports until proven otherwise.
• S&P 500 resistance is 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 intraday support is a think shelf 2163-2159.16, prints below this level for more than 4 minutes would increase the chances for a test of the gap created by Tuesday's surge at the open. That gap is 2147.31-2141 (intraday charts).
• Nasdaq support is 2158-2140 and 2138.46-2130. stacked at 2128-1212. Next meaningful support for the Nasdaq is 2106-2039 with a focus of support 2106-2076 (very strong and should hold). Has not been tested.
• The S&P 500 has support 1228.96-1218, overlapped at 1219-1215. Next support 1206-1165 with a focus of support 1206-1183. This is a very strong layer of support, if prices drop under 1200, prints 1198-1194 should attract buyers again (not expected under current conditions without a headline).
Here are some September facts based on S&P 500 price data from 1972 TO 2004. Please do not view these September facts as a prediction of price action. These performance notes are a chronicle of what has happened in the past. Every market is different and even if every single September in the history of the S&P 500 was a down September, that does not mean that every single September in the future would be a down month. People ask, so I provide the data.
• Average performance (of all 33 Septembers in the study) has been a loss of 1.17%.
• The month has been a gainer 12 out of 33 years, or 36% of the time.
• The month has been a loser 21 out of 33 years or 64% of the time.
• There have been 14 times since 1972 that September has followed a 22 trade day period of a net loss (the case this year), when that has occurred, the month of September has posted a closing gain for the month 7 times, a closing loss 7 times. It's a coin-toss.
Cherney is president of Cherney Market Analysis