Downside Remains Limited

Until the markets demonstrate the ability to overcome resistance levels, sideways action appears likely

By Paul Cherney

In Monday's session, the IBM warning forced prices lower, into support areas on the chart that I expect to hold on a closing basis. But the extremely low volume on the day (right or wrong) says to me that the price action was only short-covering and some bargain hunting, the work of short-term traders. I do not think long-term investors were coming in off the sidelines or the volume totals would have been something on the order of NYSE 1.5 billion shares and Nasdaq 2.0 billion shares.

I think Monday's action confirms that the markets have support directly under current prices and that downside is limited, but I do not think that means we are at the beginning of a sustained rocket-shot higher.

Until the markets demonstrate the ability to overcome resistance levels, I have to assume sideways action. I think that investors still have a reluctance to commit to the long side ahead of the first earnings reports. But I would change my opinion if the Nasdaq closed above the 1805 level, or if the S&P 500 closed above 1136).

Immediate Nasdaq support is 1765-1742. The S&P 500 has a focus of support 1119-1113.

Immediate intraday resistance for the Nasdaq is 1786-1803 then 1808-1822.

The S&P 500 has immediate resistance at 1126-1136 then 1142-1157.

The S&P 500 has immediate support at 1124-1106, with a focus at 1119-1113. If tested, this area should hold on a closing basis and still has the tential to produce a rebound in prices.

Cherney is market analyst for Standard & Poor's

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