Buyers Losing Conviction?

Declining volume trends may signal a further retracement in prices

By Paul Cherney

Friday is the quarterly expiration of options. It is a wild card for price action, but usually, prices make a move in one direction at the open then retrace a little and then spend most of the session moving sideways.

If you take the time to look at a daily chart of the Nasdaq with volume bars corresponding to each of the individual days, something should become very apparent to you. Look at how much volume was coming into the rising market during trade days from May 29 to June 6; now, compare that to the amount of volume coming into the rising trend in prices from June 10 to June 18. During the 6/10 to 6/18 period there simply were fewer people interested in buying. These were roughly the same prices that were drawing the big crowds (volume) back in the 5/29-6/6 period.

Fewer people are interested in buying. Maybe prices will have to retrace and test price levels which drew the buyers into the market during the 5/29/03-6/6/03 timeframe.

The Nasdaq has a layer of support at 1642-1622.99 which will probably support prices in Friday's session, but if you look at where prices were back when the volume really started ramping higher, those prices are in the Nasdaq 1620-1565 area and a test of that price area might unfold.

Based on this observation, a retracement for the S&P 500 would carry downside risk for S&P 500 prints of 973-946.

Thursday's price activity is probably going to move my end-of-day momentum pricing models from only slightly positive to neutral.

The S&P 500 has immediate intraday resistance at 997-1003, then 1010-1015.12. The bigger picture of resistance which was established by price action from June, 2002, is that the S&P 500 has a band of resistance at 1008-1041, with a focus of 1020-1031.

The Nasdaq has immediate intraday resistance at 1658-1669, then 1678.80-1685.04. The Nasdaq's chart resistance from a year ago is 1660-1684, with a focus of resistance 1667-1682. Next resistance is 1697-1759, with a focus of 1713-1735.

Support: The Nasdaq has support at 1642-1622.99, 1619-1610 then 1603-1584.

Immediate intraday support for the S&P 500 is 995-984, then overlapping at 989-972.

Cherney is chief market analyst for Standard & Poor's

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