Downside is Limited
By Paul Cherney
Wednesday's action was short-covering. Market turns often start with short-covering but we have to wait to see more evidence. Right now, the volume remains questionable (not enough total trading volume to suggest that the sidelines are emptying with aggressive buyers charging onto the trading floor), but I don't know how much faith I can put in that observation because the summertime volume is traditionally low. Right now, without any clear trend in place, this is a wait and see mode.
I still think the downside is limited because I think that longer-term investors who haven't sold, probably will just hold on. (If you haven't sold by now, what's the point?) These markets are still in the hands of short-term traders until I see real volume coming in.
On balance, Nasdaq end of day indicators and systems remain in neutral. I think the downside is probably limited. One intraday price monitoring system is predicting that if the S&P 500 prints below 1150.60, then odds increase for additional selling. If this happens it would probably spell down for the Nasdaq, too, but the S&P 500 has to start printing below 1150.60 to increase the odds for this bearish call.
After reviewing Nasdaq charts from the first couple of days off the April 4th bottom I will redefine immediate Nasdaq support as 1838-1812. If 1812 is broken then there is a relatively open space on the charts and the next support does not appear until 1785-1721.
The Nasdaq has immediate resistance 1862-1923 with a focus 1862-1881 then 1897-1916.
The S&P 500 has immediate support in the 1153-1119 area, within this support band is a focus of support 1143-1128. Immediate resistance is now 1165-1170. Considerable resistance is 1174-1186.
Cherney is Market Analyst for Standard & Poor's