A Post-Holiday Lull?

The markets are ripe for some sort of profit-taking and the upside from current levels might be labored

By Paul Cherney

A reluctance to sell could remain the major theme for the markets through Wednesday -- the first trading day of December.

End-of-day momentum measures remain at levels that usually mean retracements in price are usually short in duration and shallow in depth, but the markets are ripe for some sort of profit-taking and the upside from current levels might be a labored affair.

There is a tendency for some price weakness in the beginning of December which is usually a pretty good set-up for a lift into the end of the year. I ran a program that looked at price action -- for the S&P 500 from 1959 through 2003 -- from the close of the Tuesday before Thanksgiving (equivalent to the close for Monday, Nov. 29), and then identified the lowest close from the Tuesday before Thanksgiving until the end of the year.

You would expect that since markets have a positive seasonal bias in place that prices would rise during this window of time, and that is the case, But I had the program identify when the lowest close for the period occurred and 67% of the time, the lowest close has occurred before the 14th trading day of the window of time studied. For the current market, that means I would expect to see the low for the period to occur on or before Monday, Dec. 13.

Please note: I do not present these studies as being statistically valid, they are simply observations of what has occurred in the past. I find them interesting and they can be useful especially when technical measures line up in agreement.

I expect the S&P 500 support at 1,170-1,160 to hold on a closing basis, but if the index were to undercut 1,160, that would increase downside risk for prints at the next layer of support: 1,147-1,127. The 1,147-1,127 area has a focus of support at 1,144-1,138.50.

Immediate intraday resistance is 1,178-1,188.46 for the S&P 500 and 2,099-2,117.89 for the Nasdaq. If either of these resistance levels is exceeded, another leg higher will be in place.

Nasdaq charts based on daily price bars show support at 2,094-2,052 and 2,068-2,025 and that makes the 2,068-2,052 area thick with support. The next layer of support is 2,049.77-2,032. Next intraday support is 2,020.67-2,002.

S&P 500 support is 1,177-1,160, with thick support at 1,170-1,160. The next layer of organized intraday support is 1,147-1,138.50.

We are in what has been historically, on average, the three best performing months of the year -- November through January. Downside risk should be limited.

Cherney is chief market analyst for Standard & Poor's