Downside Appears Limited

Monday's market action was unhealthy, but not a death knell

By Paul Cherney

The markets are trying to maintain a platform for prices which should be able to generate a nice lift, but Monday's failure to capitalize on the opening surge in prices means that there are still sellers above the current price levels. Why? Because a lift in prices brought sellers to the markets instead of more buyers.

The market action was unhealthy, but not a death knell. Sometimes under conditions like this there has to be a brief shakeout to rid the markets of overhead resistance.

Downside appears limited. Higher closes than Monday's closes should occur this week.

The potentially bullish ABC patterns remain valid. They would trigger with a Nasdaq close above 1425.73 or an S&P 500 close above 895.90.

Intraday supports: Immediate S&P 500 support is now 885-874, with a focus of 880.51-876.41. If the index moves below 873, downside risk would increase for a test of the support under 873 which is 861-853 and prints at these levels would be a shakeout. If this were to happen I think the buyers would come rushing in.

Immediate Nasdaq support is now 1390-1378. A shakeout might be in the works if the Nasdaq prints below 1374. That would open downside risk for prints 1357-1339.

The S&P 500's substantial support is 852-826, with a focus of 848-839.

The Nasdaq's substantial support is 1352-1326.49 with a focus 1347-1333.

Resistances: S&P 500 resistance is the broad resistance at 887 to 911, the next resistance is 920-935.

Immediate Nasdaq resistance is 1392-1208. The major resistance for the Nasdaq is 1420-1467, with a focus of 1433-1451.

Cherney is chief market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.