Consolidation Ahead?

The markets might have to wait until around Thanksgiving -- and the run-up to fourth quarter earnings season -- to really get in gear

By Paul Cherney

In Monday's markets, the S&P 500 and the Nasdaq reached into an area on the chart which looks ripe for sideways consolidation or a little profit-taking.

The elections on Tuesday have the potential to force the hands of buyers. At least that is one view by the Street should the Republicans gain control of the Senate.

What is there to inspire more buying once the Fed cuts rate on Wednesday? Many on the Street are speculating that if and when Harvey Pitt is no longer at the helm of the SEC, there could be a small relief rally. I have also heard speculation that if the ECB or the Bank of England cut rates, that buyers might gain the upper hand, but with most of the earnings out of the way and Microsoft's victory in the antitrust case a memory now, there is the real potential for only labored advances which really do not garner powerful follow-through.

The markets might have to wait until closer to Thanksgiving and anticipation of fourth quarter earnings reports to really get in gear.

We are entering into a seasonally strong time of the year so the potential for bigger gains is always there, and, other technical (other bullish technical conditions) might unfold which support higher prices, but for now I am expecting limited upside from here unless I see convincing technical evidence that I am wrong.

I don't think that there is tremendous downside. The studies I have undertaken on S&P 500 price performance in the fourth quarter following a third quarter loss of 10% or greater have 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 for a couple of weeks (maybe).

Support: The S&P 500 has multiple stairsteps of support. Immediate support is now 894-885 and 890-873, which makes the 890-885 area a focus of support. The stairsteps of support include 877.51-866.14, 866.64-856.28, and 850-840. The recently established sideways consolidation should hold prices. That consolidation range is 905-867.

Immediate Nasdaq support is 1361-1279, with concentrations of price activity at 1347-1331, then 1319-1300.

Resistance: Immediate intraday resistance for the S&P 500 is 909-928. The next resistance is 932-964.84.

The Nasdaq has thick resistance at 1360-1427, with end of day closing resistance (looks very strong) at 1374-1399. Immediate resistance established intraday on Monday is 1410-1420. The recently established consolidation range in the 1361-1279 area should support prices.

Cherney is chief market analyst for Standard & Poor's

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