Veil of Uncertainty

Prices could go sideways to higher on Wednesday, but it may not last long

By Paul Cherney

Enron's debacle has created a veil of earnings uncertainties. Markets do not like uncertainties.

Intraday measures of volume fueling Tuesday's downside momentum hit levels which usually precede additional weakness. But here's the twist: There are two price scenarios which could take place. Further weakness does not necessarily have to happen on Wednesday. Wednesday could see some sideways to higher prices, (even a gap higher at the open which is then followed by sideways price movement), but if that happens, then Thursday will probably be a down day (This is the price pattern that has a slightly better odds of occurring on Wednesday.)

The other possibility for prices is a gap lower at the open, an additional plunge which sends intraday put/call ratios to extremes (total p/c greater than 0.90, equity only p/c greater than 0.75) which would represent a short-term capitulation. If prices can come back and close at or above the open for the session, odds are high for followthrough higher on Thursday.

If the market gaps lower in Wednesday's session, here are the likely price levels for shorts to start covering and some bargain hunters to start buying: NASDAQ prints 1853 and lower. S&P 500 at 1094-1080, and DJIA at 9614-9450.

The NASDAQ has immediate intraday resistance 1913-1925. The index has considerable resistance at 1942-1985.83, with the first focus of resistance 1942-1966. There is a thicker layer of resistance 1966-1986 and then stacked right on top of the 1986 there is resistance 1977-2018 which makes the 1977-1986 level a focus of resistance.

The S&P 500 index has a immediate intraday resistance 1110-1118, then 1123-1129. The index is testing well-defined intermediate term support in the 1111-1052 area which I expect to hold prices.

Cherney is market analyst for Standard & Poor's

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