Still More Upside for Stocks

But chances are rising for a day or two of retracement next week

By Paul Cherney

I do not think the upside is over. We are in the second half of October after a September quarter with more than a 10% loss -- and odds still favor higher prices over the intermediate term (couple of weeks). But, chances are rising for a day or two of retracement next week. Usually, the retracement (in this context) is viewed by the markets as a buying opportunity.

The companies that were going to disappoint have probably already prepared the markets during the confessional season; this is the part of the earnings reporting season that should see companies meet expectations or report better than expected numbers. This is virtually the opposite of what we have been experiencing for more than a few quarters, when companies were guiding lower and then many of them were missing their lowered guidance numbers. I also think that there is more faith in the numbers being reported due to the SEC requiring CEOs and CFOs to guarantee the numbers.

This is a bottoming process. This is not the kind of market that is going to just zoom higher every day.

Support: The S&P 500 has multiple stairsteps of support: 877.51-866.14, 866.64-856.28, and 850-840. A move below 856.28 which does not attract buyers in less than four minutes opens risk for prints 844-840. If there is going to be a retracement sometime next week, I think the odds are good right now that the 856.60 level will not be undercut.

Immediate Nasdaq support is 1279-1267, then 1256-1229, then 1244-1220, which makes the 1244-1229 area a focus of support. There is additional support at 1221.60-1193.42, with a focus at 1216-1206. If the index filled the closest price gap to current market prices it would have to print 1234.63. Not all gaps get filled but more of them do than don't.

Resistance: Immediate intraday resistance for the S&P 500 is 871-924, with a well defined wall at 881-890. Next resistance is at 909-928.

The Nasdaq has immediate, thick resistance at 1299-1347, with a focus at 1307-1327. This area looks like ceiling for prices in the short-run and the first test of this area might bring short-term sellers to the market.

Cherney is chief market analyst for Standard & Poor's