A Tuesday Bounce?
By Paul Cherney
End-of-day price momentum models based on both the Nasdaq and the S&P 500 have lost their positive biases; they are technically neutral.
For Tuesday, unless there is a headline to impact psychology or raise concerns about earnings, I think that the downside price movement is going to run out of momentum. A small rebound in prices seems likely due to short-term oversold indications based on measures combining price with volume. This is true for both the S&P 500 and Nasdaq composite indexes.
Here are some technical levels which would boost bullish confidence for a one-day lift on Tuesday: The VIX (market volatility index) would have to move back below its 10-day exponential moving average. That number was 22.13 -- very close to its level at the end of Monday's session.
Bulls should also want to see a small dip in prices near the open, or in the first hour of trading which causes the CBOE put-call ratios to jump. It would be preferable to see high intraday P/C ratios, an intraday total P/C above .90 and an equity-only P/C above 0.75.
Even if the technical levels of P/C ratios and the VIX are not seen on Tuesday, there is another condition present in the current market which might cause some buying: greed. Short-term bears have profits and these markets have not experienced prolonged bouts of selling over the past few weeks, so bears with profits on the short-side might decide to "buy to cover," outstanding short positions and that should bring a floor to prices and possibly inspire a rebound (one-day event).
Resistance: The S&P 500 has immediate intraday resistance at84-995 and 993-1003,which makes 993-995 an especially thick area of resistance. Next resistance is 1010-1015.12. The bigger picture of resistance which was established by price action in 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 1610-1619, 1641-1660.47, and 1658-1669, which makes the 1658-1660.47 area especially strong resistance.
Support: The Nasdaq has support at 1603-1584. The index has at least in part satisfied short-term concerns about a retest of the price levels at the time the huge volume was coming into the market (5/29-6/6) by retesting the price levels then which are/were 1620-1565.
Immediate intraday support for the S&P 500 is 995-984, then overlapping at 989-972. If the index were to simply return to test the price levels at the time of the huge volume was coming into the market it would mean a visit to 973-946.
Cherney is chief market analyst for Standard & Poor's