Waiting for a Bottom
By Paul Cherney
The earnings stories continue to unimpress.
The NASDAQ and the S&P 500 are retesting areas of support established Apr. 11 through Apr. 15 and in the end of February of this year. This is pretty extensive support which should slow the decline and produce at least a short-term counter move.
The classic signs of the end of the selling are not present yet. I like to see an intraday drop in prices which sees huge volume (a sign that sideline observers can't resist the bargains). Another sign would be excessive put/call ratios on the day of huge volume and a reversal in prices. You don't have to have these things to reverse a market slide, but many people will wait to commit short-term cash until they see something more emblematic of a bottom.
Overhead resistance is thick which would suggest that anything to the upside will be hard-fought.
The NASDAQ has immediate support 1760-1724 with a focus 1760-1740. There is considerable support in this region and it should at least slow the decline. If there are no more bombshells overnight, a little weakness on Tuesday morning could prompt some bears to start covering open short positions which could lift prices for the day, but the overhead resistance is thick and the markets might spend a few days in this area (or slightly lower) before enough buyers assemble.
Immediate NASDAQ resistance is 1778-1806 with a focus 1793-1806.
The S&P 500 has immediate resistance 1120-1133.31. I think it would be short-term bullish if the index could close above 1133.31.
The S&P 500 has support 1114-1102. there are multiple supports in this area and a second layer of support is 1102-1074 with a focus 1093-1078.
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 jumpstart the markets.
Cherney is market analyst for Standard & Poor's