Upside Appears Limited

But signs of strength in Friday's economic reports could ignite a short-term intraday rally

By Paul Cherney

This looks a lot like yesterday's column because nothing much has changed.

The historical studies keep odds high that there could be strength into Friday's close but I think that significant upside is doubtful for the following technical reason.

This year, the S&P 500 had a third-quarter loss of more than 10%. All the third-quarter losses of 10% or greater since 1960 have seen gains by the end of the Q4 which follows, but, if you looked a the highest close achieved during those fourth quarters, the average of all the "best" closes for each of the fourth quarters was 13.45%. In terms of the current market, that would equate to an S&P 500 close of 925. So I think the upside is probably limited.

I don't think that there is tremendous downside. The studies I have performed on S&P 500 price performance in the fourth quarter following a third-quarter loss of 10% or greater has also displayed a very consistent pattern: The low close for the fourth quarter has occurred on or before the 9th trade day of the quarter, so by this measure we have seen the low, but the upside appears limited.

The markets have been speculating on a rate cut by the Federal Reserve, but I think it would be some signs of strength in Friday's employment report, or the National ISM index (doubtful), that could ignite a short-term intraday rally.

Critical short-term support levels have held so far, which keeps the chances of another attempt to move higher in place.

Support: The critical S&P 500 support for the consolidation established over the last 8 trade days is 865.56-856.28. If prices cannot hold this level, then a test of the 844.39 to 826.85 level is likely.

The S&P 500 has multiple stairsteps of support: 890-873, 877.51-866.14, 866.64-856.28, and 850-840.

Immediate intraday S&P 500 support is 886.28-879.19.

Immediate Nasdaq support is a thin shelf at 1318.93-1300.55, with a focus at 1315-1311. Next support is 1287-1267, with a focus at 1279-1267. The Nasdaq's next support is 1253-1229.06.

Resistance: Immediate intraday resistance for the S&P 500 is 891-905.26 and 900.50-909.89, which makes the 900.50-905.26 area a focus of resistance. Next resistance is 909-928.

The Nasdaq has thick resistance at 1299-1347. The Nasdaq has a layer of resistance inside this band of resistance at 1332-1347. The next higher resistance is 1360-1427, with a brick wall at 1374-1399.

Cherney is chief market analyst for Standard & Poor's

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