Stocks Closing In on August Highs

Some volatile trading might unfold Friday after the University of Michigan consumer sentimet report is released

By Paul Cherney

It is not really a matter of "will" the S&P 500 break above the August, 2002 high of 965.00, it is only a question of "when." As the result of a study of price action in the S&P 500 when the Investor's Intelligence weekly survey shows the percentage of "bearish" investment advisers reaching a level of 25.0 or lower, I tend to think that there should be some more sideways price action before the S&P 500 manages to move up and close above the 965.00 level. But it could happen anytime.

On Friday, the markets might just meander sideways until the University of Michigan's consumer sentiment index is released at 9:45 a.m. ET, then some volatile trading might unfold. If the sentiment number impresses and shoots the S&P 500 above the 965.00 level, it would not be a surprise to see prices garner another wave of buyers, as long as the intraday TRIN (an index combining both advance/decline and up-volume/down-volume indicators) stays below 0.80 and the Up Volume divided by the Down Volume remains higher than 2 to 1. When those factors are in place, the odds are on the sides of the bulls and intraday retracements in price are usually viewed as buying opportunities. But even a run to the upside of a couple of trade days will probably see a retracement in prices to test the point of the breakout (S&P 500 965.00).

Immediate support for the Nasdaq is 1553-1526. Supports are stacked, with the next support at 1519.00-1489, but if there is any short-term weakness, buyers might become interested in prints of 1539 and lower. There is still considerable short interest in the Nasdaq and when that contingency of bears starts moving to cover it will be a violent up day or two.

The S&P 500 has a layer of support at 948-935.

Immediate S&P 500 resistance is 951-965.00. S&P 500 965.00 represents the high established Aug. 22, 2002 and a price move above this level, even though prices might retrace and come back underneath 965.00, would be positive price action and would signal to many chart readers that the bottoming process which started in June and July of 2002, has been completed in a positive fashion.

The Nasdaq has resistance at 1577-1594.24. Intraday price projections based on extremely high readings of volume moving into Nasdaq prices on Tuesday suggest that the first prints near 1577-1584 will probably bring sellers to the market for a few trade days, that has been the pattern in the past, but the past does not have to repeat itself.

For the Nasdaq, the next layer of resistance above the 1594 level is 1609-1760, with the first focus of resistance 1627-1658.

Cherney is chief market analyst for Standard & Poor's

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