Negative Bias for Stocks
By Paul Cherney
Note: Paul Cherney will be on vacation Mar. 22 through Mar. 26. His column will return on Mar. 29.
Momentum measures have a negative bias for both the Nasdaq and the S&P 500, so the short-term trend for prices appears to be lower, but headlines of success out of Pakistan could ignite a short-term jump in prices. However, the lift might only represent a short-covering rally, usually lasting as few one as many as four trade days.
Reminder: Monday's (Mar. 15, 2004) overnight systems run produced intermediate term signals which keep the odds for the S&P 500 tilted to favor that significant follow-through higher is not the most likely course for prices -- and that the market should exhaust short-term buying demand. It is either going to have to establish a lateral base, or continue to have lower closes. There is not enough technical evidence to suggest that the recent lift in prices was anything more than an oversold bounce in a minor downtrend.
The Nasdaq has immediate intraday support, established on Wednesday, at 1,962-1,939.20. The Nasdaq is in an area of broad support, 2,001-1,783, established over the months of October, November, and December, 2003. The index has well-defined support at 1,994-1,925, then 1,907-1,878, and in viewing the 60-minute charts I noticed a layer of support 1,928-1,906, which has made the 1,928-1,925 area a focus of support.
The S&P 500 has immediate intraday support at 1,110-1,091, with a focus at 1,097-1,091, then 1,082-1,053, with well organized support at 1,077-1,031.
Immediate resistance for the S&P 500 is stacked: 1,113-1,119, then 1,120.90-1,133.11, then 1,138-1,146.
The immediate resistance for the Nasdaq is 1,956-1,970 and 1,968-1,984.71, which makes the 1,968-1,970 area strong resistance. Next resistance above 1,984.71 is 1,996-2,022.
On Thursday, March 11, 2004, the S&P 500 closed below the "line of death" at 1,120.90 and this has technically opened downside risk for a test of the next layer of organized support on the daily charts which is 1,077-1,031. There is no calendar or timetable for this potential downside target. Prices never move in straight lines and a move to test or close down in the support 1,077-1,031 might not unfold, but until I see stronger technical evidence to sway my opinion, that is what I expect. However, if the index can close above 1,146, this expectation would have to be considered wrong.
Cherney is chief market analyst for Standard & Poor's