By Paul Cherney
Friday's gains have created conditions that can see profit-taking on Monday.
On Wednesday, the Nasdaq's overnight systems run produced a yellow flag of caution. After readings like this there can be some sideways and a feeble attempt at a lift (Thursday was mostly sideways, Friday was the lift), but this signal combined with deterioration in price momentum and volume measures keeps my view tilted to ultimately expect some weakness. Monday would be a natural day for some retracement.
If I am wrong, and the markets produce an S&P 500 close over 1242.62 or a Nasdaq close above 2186.83, then the markets have already made their bets that the Fed will pause or offer phrasing that suggests a pause on Tuesday September 20th.
Obviously, Tuesday's FOMC announcement can ignite a market reaction if the Fed surprises with a pause at the meeting (that does not seem likely, but that would be the "surprise" that would be a catalyst for a sharp short-term advance). Another potential for short-term upside would be if the market interprets the post meeting announcement as hinting at a pause.
• The Nasdaq has intraday resistance at 2158-2163, resistance is formidable at 2165-2186.83, and gets thick at 2177-2186.83. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens at 2211-2233.
• S&P 500 resistance is formidable at 1229-1242.62. 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 is 2147.31-2139 (intraday charts). An additional leg lower is expected, that might occur Monday. If there is a retracement and prices find support in the 2147-2139 area then sideways through to the announcement on Tuesday would be expected.
• The next layer of well defined Nasdaq support (under 2139) 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 at 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.
• The S&P 500 has immediate intraday support at 1234-1224.85. Thursday's price action 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