A One-Day Bounce?

An oversold rebound looks likely for Tuesday. But the intermediate-term charts tell another story

By Paul Cherney

The crisis of confidence in the accounting methods used (at some companies) continues to weigh upon sentiment. This represents uncertainty. Markets hate uncertainty. The real uncertainty created by these accounting problems is: How can you guess at a valuation for the marketplace when you might not have a clear idea of what earnings really are?

Intermediate term indicators (for the next 10 to 15 trading days) are negative for both the Nasdaq and the S&P 500. These indicators are momentum-based and will lag turns in the market by 2 to 5 trade days.

On Tuesday I am expecting a short-term shake-out in the morning and then an attempt to rebound which could see gains on the day. These markets remain susceptible to headlines (both good and bad).

The Nasdaq has intraday resistance at 1861-1878. Resistance becomes thick at 1901-1923. The Nasdaq has intraday support at 1823-1782 which looks like a likely spot for bargain hunting and short-covering (if prices reach 1823 or lower).

The S&P 500 index has well-defined intermediate term support in the 1111-1052 area. There is a focus of support inside this region at 1094-1080. This still looks like a likely spot for bargain hunting and short-covering. (The low print for Wednesday, Jan. 30, was 1081.66.) The S&P 500 index has immediate resistance at 1101-1109 then resistance becomes thick at 1119-1129.40.

One day higher (an oversold rebound) looks likely for Tuesday. But the intermediate-term charts look like they have not established a bottom yet. Maybe Tuesday will represent the second low of a double bottom.

Cherney is market analyst for Standard & Poor's

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