By Paul Cherney
This is the week of the quarterly expirations (known for years as the Triple Witch).
The S&P 500 and the Nasdaq are at key levels of resistance. Short-term momentum measures retain a minor positive bias. This is the week of the Triple Witch and there are leveraged bets whose unwinding ahead of the expirations on Friday can sometimes create a price movement one way on Tuesday and the other way on Wednesday. After a down Tuesday, I prefer to see weakness at the open on the Wednesday of expiration, if there is a weak opening, it can represent a small wash-out that relieves some selling pressure and forces liquidation of bearish leveraged bets. When profits are taken in those bearish bets, hedges can be unwound and that is the potential fuel for a lift from the lows and even a positive close.
Wednesday's key economic reports include August reports on retail sales (the Street expects a decline of 1.1%), industrial production (an increase of 0.3%), and capacity utilization (a reading of 79.8%).
I cannot call for upside unless I can see closes above the key resistance levels I have been referencing, S&P 500 1242.62 and Nasdaq 2185.91, and we all know that has not happened yet.
Both the Nasdaq and the S&P 500 are at key levels of resistance. The "key" levels of resistance I am referring to are Nasdaq 2177-2185.91 and S&P 500 1238-1242.62. One of the most bullish things that can happen is a gap above the key resistance levels and a close above those levels for the day. An event like this can ignite buying that creates a trend that no one believes. If the Nasdaq produces a close above 2185.91, if the S&P 500 produces a close above 1242.62, another extension higher would be expected.
At this time, even if there is a failure at the key resistance levels, downside still appears limited.
A break above the key resistance levels would increase the pressure to buy and there should be a short (a couple of trade days) break to the upside. If there is a brief lift, then there is a potential that the Fed could dampen spirits. In the Fed's post-meeting announcement on Tuesday, Sept. 20, the markets want to hear the FOMC include some qualifier suggesting that a pause in rate hikes would be likely if it is perceived that the impact of Katrina is a burden for the economy.
• The Nasdaq has resistance at 2165-2185.91; resistance gets thick at 2177.85-2185.91. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens at 2211-2233.
• 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 to 1245.81. The next focus of resistance above 1245 is 1249.23-1267.
• Nasdaq intraday support is a thick shelf at 2163-2158.61; next intraday support is a gap at 2147.31-2141 (intraday charts).
• Nasdaq support is stacked at 2158-2140 and 2138.46-2130 and 2128-1212. The next meaningful support for the Nasdaq is 2106-2039 with a focus of support at 2106-2076 (very strong and should hold). This has not been tested and in the short-term I do not think it can be tested unless there is a headline of undeniably bearish importance.
• The S&P 500 has support at 1236.77-1229.51, stacked at 1228.96-1218, overlapped at 1219-1215. Next support is 1206-1165 with a focus of support at 1206-1183. This is a very strong layer of support and if it were tested, I would still expect it to hold.
Cherney is president of Cherney Market Analysis