A Gloomy Picture

The market needs some sort of base-building in order to sustain an advance

By Paul Cherney

Intermediate term technical measures are negative.

At least some of the move on Friday was related to options expiration. Some unwinding of hedges on Tuesday could see a little price relief (higher prices in a rebound from intraday and short-term oversold conditions). A retest of Friday's lows early in the session seems possible, and that would be a likely time for prices to find a footing and attempt to lift -- just for the day.

The big problem the markets face is that many of the big companies are simply not announcing the kind of improved earnings outlooks that investors had been hoping for.

The Nasdaq has immediate intraday resistance at 1942-1965, then 1977-1996, then 2018-2034.58. If there is a rebound in prices on Tuesday, an advance not married to a headline of undeniably bullish importance will probably run out of upside momentum before it gets to the 1977-1996 layer of resistance.

The Nasdaq is inside well defined intermediate term chart support (I am looking at weekly bars here) at 1965-1853. Intraday charts have a band of support at 1929-1882 with multiple price points, including especially thick support in the 1919-1898 area, which should act as a springboard for prices (if tested intraday) in Tuesday's session. I do not think a day of gains on Tuesday will eliminate the market's need for some sort of base-building before something more than knee-jerk (one day) reaction to the upside will unfold.

The S&P 500 index has a focus of resistance in the 1138-1151 area, which is part of a broader band of resistance at 1138-1159. The index appears destined to test its intermediate term support in the 1111-1052 area sometime in the next three to five trade days. Friday's intraday low was 1124.45.

Cherney is market analyst for Standard & Poor's

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