Downside Risk Looks Limited
By Paul Cherney
Sideways price action and some basebuilding would be natural.
Downside risk appears limited.
There was so much "good" positive momentum generated by the recent breakouts above the trading ranges that there should be a residual positive effect that should prevent prices from making a dramatic drop, and the ranges established in June, July and August themselves represent substantial technical support, but another trade day of sideways hesitation would be natural based on the short-term oversold signals generated in Wednesday's overnight systems run and the psychological weight of the earnings confessional season.
The S&P 500 has a focus of immediate support at 1,015-1,008. The Nasdaq's immediate support is 1,825-1,799.
Immediate Nasdaq resistance is multi-layered, which is why a substantial jump higher does not appear likely right now.
Immediate Nasdaq resistance (intraday) is 1,853-1,859.21.
The S&P 500 is inside the 1,015.87-1,021.51 layer of resistance, the next well-defined layer is directly overhead at 1,023-1,026.76.
The Nasdaq has immediate resistance at 1,853-1,859.21 then 1,874-1,893; this layer of resistance is based on intraday trading (60-minute bars) from March 18 and 19 of 2002. The further back in time you go, the less important short-term intraday price ranges become. But this market has not moved above the 1,893 level intraday.
The Nasdaq has a price gap created by the opening on March 12, 2002. These are hourly charts and the gap runs from 1,899.01-1,928.12. Quite often, the first test of a price gap brings sellers to the markets.
S&P 500 resistance (daily bar charts) was established by price action in June of 2002, it is 1,008-1,041 with a focus at 1,020-1,031. The index has been unable to close above the 1,031 level. The next resistance is big at 1,048-1,107, from March, 2002. Two different measures of the potential upside for the current break above the 1,015 level target 1,047 and 1,070 as potential upside prints.
Immediate support for the S&P 500 is 1,015-988 with a focus at 1,015-1,008.
On a pure chart basis, the Nasdaq's breakout of its trading range has created the potential for a test of 1,912-1,954. The S&P 500 has the potential to print 1,047-1,070. There is no time schedule for these potential moves.
Cherney is chief market analyst for Standard & Poor's