By Paul Cherney
This is the week of the quarterly expirations (known for years as the Triple Witch).
Wednesday's session produced readings that usually mean more downside to come. For Thursday, prices might spend much of the session sideways with a slightly negative bias. Since this is the week of the quarterly expirations, though, there can be option-driven buying but that would be signaled by a VXO move below 11.89. It would take a VXO move below 11.47 to suggest strong mechanical buying.
For days, the major equity indexes failed at key resistance levels and the markets probably need to re-group at lower levels. I think the markets are starting to become more concerned about the inflationary pressures created by the energy prices. We already know the higher gas pump prices will crimp discretionary income which has affected the retailers, but due to the timing of Katrina, the increased costs have not really had a chance to be counted in the monthly reports.
On Thursday, the August CPI will be reported. These data will be pre-Katrina. The Street expects +0.5% for the headline number and +0.2% for the core (ex-food & ex-energy). Higher than Street expectations for these numbers might cause real concerns that the Fed could be less then accommodative in the wording of its post meeting announcement on Tuesday, Sept. 20.
• The NASDAQ has intraday resistance 2158-2163, resistance is formidable 2165-2186.83, resistance gets thick 2177-2186.83. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens 2211-2233.
• S&P 500 resistance is formidable at 1229-1242.62. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62.The next focus of resistance above 1245 is 1249.23-1267.
• NASDAQ intraday support at 2163-2158.61 has broken, next intraday support is a gap at 2147.31-2141 (intraday charts) and on Thursday, prices can move into this area and stabilize, but 60minute measures have already registered levels that tilt the odds to suggest that even if there is a little stabilization on Thursday, sometime either Friday or Monday, an additional leg lower is expected.
• The next layer of well defined NASDAQ support is 2131-2112.25. The NASDAQ's support at 2106-2039 is a critical support level that if broken would open the downside for sub 2000 prints. Inside the 2106-2039 support layer, there is a focus of support 2106-2076 and this is still a likely spot for the markets to attempt a stand.
• Chart pattern studies I have done suggest that if the NASDAQ has a close below the 2146 level, additional downside is likely.
• In Wednesday's session, the S&P 500 produced prints under 1226.51 and this has opened the intraday risk for a test of the 1222-1215 area. Next support is 1206-1165 with a focus of support 1206-1183. This is a very strong layer of support and if it were tested, I would still expect it to hold on the test. If the index experiences a close under 1218.02, a re-test of 1206-1195 area would be expected.
Cherney is president of Cherney Market Analysis