Shock Therapy Needed?

The odds have just increased that a selling capitulation is needed before the market can move consistently higher

By Paul Cherney

Tuesday's session offered a form of confirmation that there are still sellers who are unsatisfied (they want to sell but have not sold yet). I think the odds have just increased that we are going to have to have a selling capitulation before these markets can get anything moving consistently higher.

The intraday pattern I like to see (which often marks a capitulation) is a gap lower at the open, and then an attempt to lift prices, the intraday lows established in the first 30 minutes of trading are undercut and prices just move lower and lower as the market casts bullish hopes aside. An intraday reversal of price momentum from "down" to "up" accompanied by huge volume sometime after 12:30 pm.

Immediate intraday resistance for the Nasdaq is 1517-1528.40, then brick wall resistance is 1554-1595. There is a focus of resistance inside this brick wall at 1560-1570.

For the S&P 500, immediate intraday resistance is 1023-1027.74, then 1032-1037.80. There is thick price traffic 1039-1047.

Immediate Nasdaq (intraday) support is 1520-1495.81. The end of day charts show a band of support 1516-1466 which makes 1516-1495.81 a focus of support. I think this level has to break in a capitulation. If prices can make it down to test the trading range on the day of the September 21 lows (printed below), then this would represent a bell ringer for the bears to start covering aggressively because the history of September has already proven that there are people willing to buy at those prices and that would be likely spot to see at least a short-covering bounce unfold. (Prices might not be able to make it to the 1455 area, but if the intraday capitulation price pattern I described above unfolds, there should be more than one day of a rebound.)

Immediate intraday support for the S&P 500 is 1025-1012. The next layer of support is 1022-998. The S&P 500's trading range from Sept 21 of 2001 was 984.54-944.75.

Here are the price ranges and closes for the Nasdaq and the S&P 500 from the day of the September 2001 lows. The markets might have to print inside these price ranges to attract die-hard technicians to commit to the market.

• S&P 500 intraday high 984.54, intraday low 944.75, close 965.80

• Nasdaq intraday high 1454.04, intraday low 1387.06, close 1423.19.

Cherney is chief market analyst for Standard & Poor's

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