Time for a Breather?

Some sort of short-term profit-taking would be natural after the recent gains

By Paul Cherney

Comments in the previous column about the Nasdaq's breakout of its trading range remain valid; the potential for a move to 1,912-1,954 is real, but markets don't move in the same direction every single trading day.

Wednesday's total trading volume, especially in the Nasdaq, probably represented a buyers' capitulation and I expect to see a flat market or a market which retraces some of the recent gains (in the very short-term, like maybe only intraday on Thursday, but a one- or two-day pullback might unfold).

If prices were to jump higher at Thursday's open (without an uplifting headline either related to the markets or from outside the marketplace), then I think the sellers could become very aggressive. A jump higher at the open which fails to find follow-through and then sees prices undercut the intraday lows, would be a sign that short-term buying interest might have been used up.

Some sort of short-term profit-taking would be natural. Odds still favor higher prices in the days ahead. Intraday prints representing losses of 0.8% to 1.5% for the S&P 500 and/or 1.0% to 2.0% for the Nasdaq would be perfectly natural.

The Nasdaq has a pretty thick layer of resistance established during March, 2002, and it is well defined at 1,845-1,946 with a thick shelf at 1,846-1,873. Wednesday's high print was 1,863.55. Resistance becomes especially cluttered with prints of 1,933 and higher because not only is there resistance from March, 2002, there is also the beginning of resistance dating back to June and July of 2001.

S&P 500 resistance (daily bar charts) was established by price action in June, 2002; it is 1,008-1,041 with a focus at 1,020-1,031. In Wednesday's session, the index printed a high of 1,029.34. The next resistance is big at 1,048-1107, from March, 2002.

Immediate support for the S&P 500 is 1,015-988 with a focus at 1,015-1,008.

Immediate support for the Nasdaq is 1,841.48-1,832.08, then stacked at 1,830-1,773. It becomes thick starting with prints of 1,797-1,778. Support runs all the way to 1,737.

Cherney is chief market analyst for Standard & Poor's