Ready to Bounce
By Paul Cherney
End-of-day indicators for both the Nasdaq and the S&P 500 are negative but in Thursday's market, the S&P 500 tested support at 806-792 and attracted buyers. The price pattern displayed intraday for the S&P 500 is a bullish pattern for the next trade day, meaning usually, prices will move higher.
Thursday's negative close for the S&P 500 has probably tripped an "oversold, ready to bounce" signal in the overnight systems run. These signals aren't perfect, but I rely on them heavily. It is very possible to see at least some modest gains in Friday's session. Most of that buying would probably be just shorts covering ahead of the weekend, but it does represent buying.
I can't predict headlines and the current burden of potential terrorism headlines and the situation with Iraq are wild cards, but technically, Thursday's lower close for the S&P 500 is probably going to trigger an oversold, ready to bounce signal.
The VIX (market volatility index): If the VIX prints below 37.35, then the markets have a positive background, but if the index moves below 37.35 and then reverses to move higher, this will probably coincide with weakness in stocks.
The Iraq situation and the uncertainties of terrorism are wild cards. Unpredictable influences on the market, but in the absence of any headlines related to these two situations, technical odds favor higher equity prices on Friday.
The markets had a short-term shakeout on Thursday. This has increased the chances for a short-term rebound in prices, even if it is only fed by bears taking profits in short-positions and some momentum layers jumping on for the ride.
The Nasdaq is testing immediate intraday support of 1287-1275. The next support is 1240-1198.
The Nasdaq has resistance at 1290-1315, with a focus of resistance at 1302.80-1315.
The S&P 500 has intraday resistance at 823-836, and the 832-835.72 area is a focus of resistance. More substantial resistance is 838-845.88.
Immediate S&P 500 support is/was 827-817. The index has chart support at 806-792.
Cherney is chief market analyst for Standard & Poor's