Profit-Taking Possible

Technical signals based on Nasdaq price and volume have hit levels which represent short-term overbought

By Paul Cherney

The trend (for the next 2 to 5 trade days) for the Nasdaq and the S&P 500 remains tilted in favor of higher prices.

In late day trading on Tuesday, technical oscillators based on Nasdaq price and volume measurements hit levels which represent short-term overbought. Greenspan testifies in front of the Senate Budget Committee on Thursday (around 10:00 am EST) and Wednesday's market is a prime candidate for cautious trade and lower prices.

An opening jump in the Nasdaq could easily be interpreted by position traders as the signal to make the cash register ring (book short-term profits by selling into liquidity) and that would put a lid on prices for the day (possibly within the first 30 minutes of trading).

Downside appears limited.

If the Nasdaq index opens modestly lower, I would expect to see consolidation and limited downside risk.

Immediate Nasdaq support is 2800-2766 (there is a small shelf of support in the 2834-2815 area). If prices start to print below 2815, downside risk opens for a test of the 2800-2766 supports. The next layer of support is 2748-2714 with a focus of support 2744-2731 then 2698-2661.

The Nasdaq is testing resistance in the 2760-2916, the next layer of resistance is stacked 2914-3011.

The S&P 500 has immediate support in the 1347-1339 area, then 1334-1311.

The S&P 500 is testing a layer of resistance (considerable) in the 1351-1389 area and this resistance should cap prices on Wednesday.

I regret to inform my readers that I will be out of the office on Wednesday (I have carpet-layers coming to my house on Thursday and I haven't finished painting the trim). Cherney on the Markets will return on Thursday, Jan. 25.

Cherney is market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.