Some Negative Signs

Wednesday's price and volume action represents a marked deterioration in the technical conditions of the markets

By Paul Cherney

I was wrong about opening losses on Wednesday being viewed by the markets as a buying opportunity and the larger-than-expected loss from Micron Technologies (MU ) keeps a veil of uncertainty in place for exactly when the rebound in tech earnings is going to appear. This is not healthy and Wednesday's price and volume action represents a marked deterioration in the technical conditions of the markets.

The Nasdaq is in worse shape than the S&P and the problem is that if there are more tech warnings, the decline in the Nasdaq will pull the S&P 500 lower.

This is the earnings warning season, so Micron's news might not have a huge impact in the short-term, but it will probably create some hesitancy to buy.

Regardless of the deterioration (which will be like a shadow over the markets likely preventing an upside trend), in the very short-term, late day price action in the S&P 500 suggests that closing gains on Thursday are better than a coin toss, but the overall picture is weakening.

I think upside is going to be a struggle and except for the positive bias of the Santa Claus Rally, the path of least resistance for prices is probably sideways to lower.

This is the week of the December Triple Witch -- when the monthly stock and index option expirations coincide with the quarterly expiration of futures contracts. The chances of huge moves on any single trade in the week of the December Triple Witch are slim.

The VIX has jumped back above its 10-day exponential moving average, which is not healthy. On Wednesday, near the close, the VIX's 10 day exponential was near 31.33.

Support: The S&P 500 has multiple stairsteps of support which makes a dramatic decline unlikely. Supports include 897-887, then 884-867. There is considerable price traffic (support) in the 883-875 area.

Immediate support for the Nasdaq is now 1347-1317.

Resistance: The S&P 500 has resistance at 900-910, 915-926.27 and 932-944.

The Nasdaq has immediate resistance at 1381-1412, then 1407-1426, which makes the 1407-1412 area a focus of resistance.

Cherney is chief market analyst for Standard & Poor's

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