Momentum Has Flattened

A retracement is natural after such a pronounced move

By Paul Cherney

My intermediate term momentum indicators (based on a combination of price with volume) for both the NASDAQ and the S&P 500 have flattened. The upside momentum generated during the past nine weeks is no longer expanding.

A retracement is natural after such a pronounced move. There is a seasonal trading pattern near the end of the year recognized by Yale Hirsch in his Stock Trader's Almanac, he calls the seasonal pattern: "Mid-December Lows, The Only Free Lunch On Wall Street," so some weakness into the week ending Dec. 7 would fit this seasonal observation.

In Wednesday's session, the S&P 500 and the NASDAQ finished at or near the lows of the session which keeps the odds high that any opening gains in the first 10 to 15 minutes of trading on Thursday will be short-lived and the NASDAQ and the S&P 500 will have to return to print in negative territory before a real assessment of the internals will be valid. (Unless there is a positive headline concerning the war on terrorism, but even a positive headline may only create six to nine trading hours of gains).

The S&P 500 has brickwall resistance 1153-1206. The S&P 500 has immediate (intraday) resistance 1132-1142. There is a focus of resistance 1132-1137. There is now downside risk for a retest of the layer of substantial support established during October: 1111-1052.

The NASDAQ's brick wall of resistance is 1934-2106. Immediate (intraday) resistance for the NASDAQ is 1913-1942 with a focus of resistance 1917-1927. The NASDAQ finished Wednesday's session in a test of the 1905-1879 layer of support. Here are the next layers of support: 1848-1816 then 1800-1777. There is major support established from 10/11/01 through 11/06/01 in the 1793-1631 area and this makes the 1793-1777 area a focus of support.

I don't have the technical evidence to suggest that prices are headed for these sub-1800 levels yet, but I think if prices were to print near 1800, that buyers would rush in off the sidelines.

Cherney is market analyst for Standard & Poor's