Back to Square One?

With the Nasdaq dipping below 1247 during Friday's session, the odds have increased for a complete retracement of recent gains within a few days

By Paul Cherney

The Nasdaq has immediate resistance at 1253-1263. More substantial resistance is at 1287-1300.

Immediate S&P 500 resistance is 868-875.28.

The S&P 500 has substantial resistance at 884-910, with a focus at 888-896. Immediate support for the S&P 500 looks strong in the 853-835 area.

In Friday's market, the Nasdaq printed below 1247. In Thursday's column, I mentioned that if the Nasdaq printed below 1247, then the odds would increase for a complete retracement and prints in the 1212-1192 area within a few days. This call was based on a Fibonacci retracement of 61.8% of the rebound from the July 24 lows to the recent highs.

As mentioned earlier, immediate support for the S&P 500 looks strong in the 853-835 area, but a print below 826 will increase the odds for a drop to print 802-775.

Fears of a double dip recession have been spurring the selling, but so far, the envelope of normal price activity for the S&P 500 in the aftermath of VIX readings over 50 has not been broken. I took the list of the worst closing percentage changes in the table printed in the July 29 column. I calculated what an equivalent close for the current S&P 500 would be. Here is the list: 818, 826, 826, 802, 818, 833. The price action is volatile, but it is not unnatural in the aftermath of a VIX reading over 50.

These studies were based on price action in the S&P 500, not the Nasdaq composite.

Cherney is chief market analyst for Standard & Poor's

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