Limited Upside

Given current breadth and volume readings, it would be surprising to see any significant follow-through higher

By Paul Cherney

Intermediate term indicators based on end-of-day data are in configurations which usually see sideways to lower price action which is jagged for as few as 5 trade days, up to as many as 15 trade days. This is true for both the Nasdaq and the S&P 500.

This does not mean that every day is a down day. Jagged action means that oversold levels are hit and then the bears come in to take their profits (buy to cover open short-positions), but with the current readings of breadth and volume, I would be surprised to see any significant follow-through higher. Short-covering lifts can last anywhere from 1 to 4 trade days, lately they have been 6 to 10 trading hours. (One trade day is 6.5 hours of trading).

In addition to all the questions about accounting and the moral character of some of the captains of industry, and the uncertainties between Pakistan and India; the earnings warning season is fast approaching, and unless there are headlines of indisputably bullish importance, there will probably be a reluctance to make two-fisted commitments of cash to the long side.

The sellers were unable to inflict appreciable damage to the markets today and Wednesday could see more of the same, just sideways. Moves above the immediate resistance levels mentioned below should generate a little follow-through higher as more bears cover shorts. For Wednesday, I think downside is limited.

Investor's Intelligence bullish and bearish sentiment readings are not at levels which increase the odds for a good low that launches a sustained rally.

Immediate Nasdaq (intraday) resistance is 1578-1590, with a focus of 1580-1584. The next layer of resistance (above 1590) is 1608-1637.35.

Immediate intraday resistance for the S&P 500 is 1050-1056.18 with a focus of 1052.30-1054.09. The next resistance is 1063-1097 with a focus of 1079-1086.

Immediate intraday support for the Nasdaq is 1566.43-1548.31.

Immediate intraday support for the S&P 500 is 1036-1030.52. There is another layer of support at 1022-998.

Cherney is chief market analyst for Standard & Poor's

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