More Selling Likely

There is going to have be some more pain before there is a relief rebound

By Paul Cherney

The Nasdaq and the S&P 500 have moved to new closing lows for this downleg and I cannot imagine that there will be many buyers willing to step into this market ahead of the July 4 holiday weekend, just bears covering shorts.

I mentioned in an earlier comment that with the markets so jittery it would be unhealthy to see the VIX (volatility index) close above its open. The VIX opened this morning at 29.13 and it closed the session at 30.56. Not good.

I think there is going to have be some more pain before there is a relief rebound. Further down at the open Tuesday is likely.

Over the weekend I reviewed charts and choppy price action is still likely. There is still the potential for prices to undercut the low prints from last week, meaning Nasdaq prints under 1375 and S&P 500 prints under 953 are possible. Prints under these levels will probably bring bears to the market to cover shorts ahead of the holiday weekend (the markets are only open a half day on Friday, so many people will simply be taking the day off to create a 4 day weekend).

I still believe that there should be some sort of stabilization for prices and then a rebound which lasts more than the recently demonstrated 1 or 2 days of lift. This is based on the weekly performance of the S&P 500 including relative measures of NYSE volume. This indicator has flashed signals at 4 important lows in the past 14 years (September, 2001, March, 2001, October, 1990, and December, 1987). Can it be wrong now? Anything can be wrong at anytime, but considering the track record, I would be going against the demonstrated odds to predict significant declines in prices.

After tomorrow's session, the ranks of attendance on Wall Street will undoubtedly thin due to the July 4 holiday falling on a Thursday and thin attendance on Wednesday and Friday might only contribute to jagged price patterns.

I no longer feel very confident in my belief that the lows for this downleg have already been registered but I still think there is limited downside.

The Nasdaq has immediate resistance at 1425-1436.43, then 1449 to 1491, with a focus 1480-1486.

The S&P 500 has immediate resistance at 978-984.58, then 987-1005.58. The focus of resistance in the 1000-1005.58 area has been especially thick.

Immediate Nasdaq support is 1414-1375. Prints below 1375 (if they occur before Monday, July 8) might only foster more selling. There is a small shelf of support at 1400-1392.69.

I have looked at long-term charts for the Nasdaq and the 1380-1200 area looks like a band of solid support which will act as a floor for prices. (The 1380-1200 layer is from the years 1996-1997.) I do not think the index (even if it sold off horribly), could manage more than one close below 1387.

Immediate intraday support for the S&P 500 is 967-944. Last Wednesday, the index printed a low of 953.08. I do not think the S&P 500 could have more than one close below 944.75 (and I don't think that can happen). I have looked at long-term charts of the S&P 500 and we are at the level 960-926 (from late 1997) which should act as a floor for prices.

The Sept. 21, 2001 price ranges were:

• 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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