NASDAQ Still Hanging In

Prices are likely to drop below 2000 Monday, which could signal short-covering

By Paul Cherney

The CBOE's Equity Only P/C ratio as of 4:00 p.m. EST was 0.76. I use end of day readings of 0.75 and higher to alert me that we are close to some sort of a tradeable short-covering rally, but my ideal recipe for a capitulation in this market would be an end of day Total CBOE put/Call ratio of greater than 0.99 accompanied by large NASDAQ volume of 2.4 billion shares.

I have not seen the kind of capitulation volume I would like to see in the NASDAQ to signal a tossing of the towel, but if NASDAQ prices drop below the 2000 in Monday's session, I would have to guess that plenty of stalwart bears will use that event as a mandate to take profits by closing out open short positions (buy to cover).

Monday is going to to be a little tricky because this bear market in the NASDAQ has not given bullish performances on Mondays following down Friday's; quite often the last of the selling can be pushed off until Tuesday morning. Intraday readings of volume and price may offer insight in Monday's session. There are addtional complications in that next week is the week of the Triple Witch which adds to the potential for volatility.

Immediate resistance for the NASDAQ is 2084-2124. Resistance becomes thick in the 2159-2239 area. There is a focus of resistance 2188-2204. (Additional resistance levels for the NASDAQ remain 2249-2287, then 2314-2351.)

Choosing NASDAQ support levels is difficult because the index has traveled back in time by more than two years and the older the price formation the less likely it is to provide viable readings. NASDAQ prints sub 2000 should start some short-covering but I would prefer to see excessive P/C ratios at the same time.

I expect prices to drop at the open, move under 2000 and then some short-covering could start. I'll call chart support 2058-1924 There is a focus of support 2036-2000 (which means that we might not see a sub 2000 print). For Fibonacci fans, the .618 retracement from the NASDAQ's record high close is near 1928. The .618 retracement from the intraday high of 5132.52 is 1960.62

The S&P 500 has immediate resistance 1240-1253. Considerable resistance starts with prints of 1264 and higher, then the 1274-1293 area.

Immediate S&P 500 support 1224-1214 (actually all the way down to 1206).

Anytime prices move above a layer of resistance, that layer is then considered support. Anytime prices move below a layer of support, those prices are then considered resistance.

Cherney is Market Analyst for Standard & Poor's

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