Downside Appears Limited

The S&P 500 and Nasdaq are poised just below resistance levels

By Paul Cherney

Based on the chart pattern evident before the 1991 Desert Storm conflict, there is more reward than risk in the short-term for the markets.

Downside appears limited. On a short-term basis, a persistent uptrend was established in the last four trading days of this past week and while I do not have technical indicators suggesting that the odds favor higher prices, the indexes (S&P 500 and Nasdaq) are poised just below resistance levels.

The markets are thick with bearish short positions and the only way to close out a short is to become a buyer. I would expect a sharp jump in prices if some of the uncertainty between the U.S. and Iraq is resolved. A scramble to cover outstanding short positions represents the fuel for upside.

Immediate intraday support for the S&P 500 is 838-831. Additional support is 826-815, with a focus of 826.66-818.70. Next S&P 500 support is 806-768.

The Nasdaq has immediate intraday support at 1332-1321. Additional support is 1309-1295.06, then all the way to 1279, with a focus of 1296-1287.

The S&P 500 has immediate resistance at 833-847.00. The index managed to print above the 844.60 level in Friday's session, but the looming weekend and the uncertainties of the Iraq situation kept buyers in a cautious mood. Above 847, the next resistance is 853-869 and inside of this layer is an especially thick layer at 857-862. If there are prints above the 852.87 level, there is the potential for a big short-squeeze compounded by momentum players which could see an intraday surge to prints near 870.

The Nasdaq has immediate intraday resistance at 1335-1343. If the index prints above 1343, a short-squeeze could propel prices to the 1355-1379 area.

Cherney is chief market analyst for Standard & Poor's

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