A One-Day Bounce?

The potential for a short-squeeze is high for Friday's markets

By Paul Cherney

Unless the Fed comes in and cuts rates intermeeting (doubtful) I have little faith in the ability of the equity markets to trend higher, but I do recognize that the technical developments of Thursday's session have increased the chances for a day of gains.

Sun Microsystems (SUNW ) is scheduled to have an "after the close" conference call which might deliver another salvo of bad news. At this point I wonder if the markets have the ability to react (negatively) for anything more than just a few minutes at the open.

The potential for a short-squeeze is high for Friday's markets.

The late day recovery in the Nasdaq and the S&P 500 was well supported by volume. Odds have increased that weakness near the open (if it occurs) could easily be viewed as a buying opportunity. Anything to the upside would only be considered a short-covering rally.

For the Nasdaq: immediate support is 2228-2207 then 2197-2150, Thursday's intraday low was 2185.91. If prices move below the 2185 level without attracting buyers in only 3 or 4 minutes, then another leg lower could easily unfold (not expected for Friday). The next broad layer of support is 2235-1960, within this support there is a small shelf in the 2235-2224 area, but the substantial support does not begin until 2197-2150 then 2059-1980.

Immediate Nasdaq resistance is 2261-2292. Resistance is stacked with the next layer 2296-2325 then 2343-2396.

The sidelines still look comfortable until a trend develops but in the short-term the potential for gains is evident.

The S&P 500 has immediate resistance is 1253-1260 then 1274-1293. The index has immediate support at 1246-1236.

Cherney is Market Analyst for Standard & Poor's