A Lack of Conviction
By Paul Cherney
Nothing has really changed except that there were excessive Put/Call ratios on Thursday, so there still is the potential for a push higher in prices on Monday as short-side hedges get unwound. But the price action on Wednesday, Thursday, and Friday was indicative of a market uncommitted to go higher or lower.
Overhead resistance is thick which would suggest that anything to the upside will be hard-fought. These markets are not demonstrating any ability to trend.
The Nasdaq has support 1806-1778 with a focus 1806-1793. If the index prints below 1778.10 (Thursday's intraday low after reports of the Milan plane accident crossed the tape) for more than three or four minutes without attracting buyers to lift prices back above the 1793 level then downside risk is for a test of the next layer of support 1772-1751 with a focus 1761-1754.) The Nasdaq has immediate resistance at 1812-1873. There are two focuses of resistance: 1824-1832, then 1840-1853. The 1824-1832 area is thick, but a close above this level would convert it from resistance to support.
The S&P 500 has immediate resistance at 1120-1133.31. Its descent from the beginning of March has been stair-step and that creates multiple steps of resistance above the current prices. I think it would be short-term bullish if the index could close above 1133.31, but understand that due to the nature of the descent, it is unlikely that the index will simply move higher each day. There are plateaus of selling interest above the current prices and that should make for a labored advance. But I do expect an advance. Next stairstep above 1133.31 is 1142-1157. The importance of the 1133.31 level as resistance was reinforced in Wednesday's action as the S&P 500's intraday high was 1133.00 before prices were turned down.
If the S&P 500 were to print below 1121 for more than three or four minutes without attracting buyers to lift prices, then there would be downside risk for a test of the 1114-1102 level (not expected).
Unfortunately, it is not apparent what is going to compel real buying to push prices above resistance levels. Everyone keeps talking about how the earnings reports are beating estimates, but many of them are just beating reduced estimates, in the current accounting and p-e environment it will probably take major upside surprises, not just beating reduced estimates to jump-start the markets.
Cherney is market analyst for Standard & Poor's