Riding the Wave

Market action has created a large amount of momentum for the Nasdaq. Prices should move higher next week

By Paul Cherney

In reviewing price charts for the S&P 500 in relation to the drop in bullish sentiment according to the Investor's Intelligence poll (the bullish sentiment dropped to 46.8% this week), readings have reached levels which are not necessarily indicative of a bottom, but could be supportive of an intermediate term (five to 15 trading days) lift.

The last time I had intermediate term momentum measures at their current levels and the bullish sentiment dropped under 47% was the week ending Apr. 13, 2001. I think it would take a weekly close for the S&P 500 above the 1124.72 level to increase the odds for a labored advance lasting more than two days. I am basing this on my own chart observations the last time the bullish sentiment moved under 47 while my intermediate term momentum indicators were in similar configurations.

One caveat (which has me concerned that this observation may be worthless right now): In the week ending Apr. 13, 2001, the bearish sentiment was 37.0%. Today, bears are only at 31.9%.

I expect higher prices in the upcoming week.

The Nasdaq filled its gap in Friday's session. There has been a large amount of momentum created and momentum like this does not usually just evaporate, it has lingering effects. The Nasdaq has immediate support at 1785-1770, then 1758-1740. Nasdaq resistance above the 1803 level becomes thick at 1818-1829. In Monday's session, I think any prints above 1818 are going to start to attract short-term sellers, and a stall and some retracement which lasts into Tuesday could occur. But ultimately, some time during the week, I would expect the next layer of resistance to be tested. That layer is 1842-1878. Above Nasdaq 1878, the next layer of organized resistance is at 1901-1960 with a focus of 1915-1942.

The S&P 500 has a layer of immediate support at 1126-1121. There is well defined support at 1117-1107. The "500" is within thick resistance at 1116-1139.50; the next layer of resistance is 1150-1162.

Paul Cherney will be the guest on BusinessWeek Online's Ask the Analyst video segment on Mar. 5. Got a question for him? Send it to asktheanalyst@businessweek.com

Cherney is market analyst for Standard & Poor's

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