A Short-Seller Bounce
By Paul Cherney
End of day indicators for both the Nasdaq and the S&P 500 are still technically negative, but have lost downside momentum and are turning higher (still, though, in negative territory).
Tuesday, Feb. 18 is the first trade day after the Presidents Day weekend. Historically, on the first trade day after the Presidents day weekend, when the prior two months have seen declining prices, the odds are 7 in 10 for a closing loss. The average S&P 500 performance under these conditions is a loss of 0.71%, roughly 6 points in terms of the current market.
Much of Friday's price action was shorts covering open positions ahead of the weekend, but the news from Dell Computer (DELL ) probably brought some longer-term investors in on the longside, too.
Down markets bounce when shorts cover. Bear markets reverse when shorts cover, and then longer-term investors are convinced that there is a case to be made for some value shopping. It's possible that there could be a little more interest in establishing long positions ahead of any sort of resolution in the Iraq situation. This kind of an attitude could put a floor under prices.
These markets are extremely oversold and when there is a resolution to the situation with Iraq, based solely on the degree of "oversold," I would imagine that the S&P 500 could jump 8% to 10% in a matter of 4 or 5 trade days. The Nasdaq could rise 15% or more.
The Nasdaq has immediate intraday support 1295-1279 with a focus of support 1292.51-1286.17. The next support is 1240-1198.
The Nasdaq has resistance 1302.80-1315 then 1333-1345.
The S&P 500 has intraday support 825-815 with a focus of support 825-821.44. The index has chart support is 806-792.
The S&P 500 finished Friday's session in a test of a focus of resistance 832-835.72. More substantial resistance is 838-845.88.
Cherney is chief market analyst for Standard & Poor's