A Protracted Correction?
By Paul Cherney
The technical condition of the markets remains negative -- these are momentum measures and they will lag turns by at least one trade day.
The markets have probably started a protracted correction which could see the S&P 500 print under 950, maybe a retracement to the 930-910 area. Other technical conditions might change this view, and short-term oversold rebounds are always part of such a decline, but these markets have not seen a 1/3 or a 50% retracement for the move up since March's lows, and retracements like that are common.
Intraday indicators based on 60 minute bars are not in configurations which suggest that the lows have been established. There is a small chance that there could be another one or two days of modest gains for the S&P 500.
On Wednesday, the good 5-year auction and a strong bond market helped the heavily weighted financials and insurance companies attract buyers which helped the S&P 500 (where the financials, which are rate sensitive, have a heavy weighting).
On Thursday, the quarterly refunding will conclude with the 10-year auction. Strong Treasury prices on Thursday can keep a floor under stock prices for the day, and even allow for some higher prices and a higher close for the session, but it still looks like lower prices are in store for both the NASDAQ and the S&P 500, even if the indexes can manage to eke out small gains for a couple of trade days.
The NASDAQ has immediate intraday resistance 1666-1675.46, an intraday move above 1675.46 might generate enough followthrough to see prices test the next layer of resistance, which is 1687-1723 with a focus 1695-1703. The NASDAQ has major resistance: 1722-1758. Inside this layer of resistance is a focus of resistance 1737-1753. I think it would take a headline universally recognized as bullish to move prices up to the 1690 or higher area.
Immediate intraday resistance for the S&P 500 is 973-980 then 984-991. The S&P 500 has brick-wall resistance 988-1015.41. Its focuses of resistance are 993-1000, 1005-1008, and 1010-1015. The bigger picture of resistance which was established by price action in June of 2002 is that the S&P 500 has a band of resistance 1008-1041 with a focus 1020-1031. If you look at the overlap of resistances, the 1008-1015 layer is the immediate stumbling block for S&P 500 prices.
The S&P 500 has a thin shelf support 970-962.10 -- this level was briefly undercut intraday on Wednesday, before prices rebounded. I still expect this level of support to fail and prices should test 949-912 support. This scenario does not have to unfold one trade day after another, (not necessarily down, down, down every trade day), short-term oversold rebounds in price are natural.
The NASDAQ has immediate support 1686-1653 In Wednesday's session, prices briefly undercut the 1653 level to print 1648, right at the top of the next layer of stairstep support which is 1648-1597. Unless there is a big change in the technical measures, downside risk remains open for another test and a close inside the 1648-1597 support.
Cherney is chief market analyst for Standard & Poor's