Negative Bias for Stocks

Intel's report after Tuesday's close has the potential to influence trading in the short term

By Paul Cherney

So far this year, there have been no signs of accumulation in the stock market and until that happens the assumption has to be more sideways with a negative bias.

But, on Tuesday night, after the close, Intel's (INTC ) earnings report has the potential to offer a headline that will create a short-term advantage in one direction or the other.

Some of Tuesday's selling in techs had to be collateral damage prompted by Advanced Micro Devices' (AMD ) warning about fourth-quarter sales. Markets try to discount the future (anticipation of a bad report from Intel, too?), even if the time horizon of that future is just tomorrow. If Intel disappoints and the initial reaction is lower prices, that could be a set-up for a short-covering rally. Why? If bears are convinced that a bad reaction to Intel's report is the "worst" news the that can bludgeon the markets in the short-term, then they might use an opening drop in prices as a cue to take short-sided profits, and to do that, a bear has to become a buyer. A favorably received report from Intel might bring bulls to the market on Wednesday

The intraday highs from Monday, Jan. 10, were Nasdaq 2,111.43 and S&P 500 1,194.78, and if these levels are exceeded, then bears are doing more than covering, they are probably being squeezed.

The markets are waiting for a headline to generate a reaction (bullish or bearish).

The seasonal strength for the month of January favors a positive bias for prices but one aspect of a positive market is the ability of prices to sequentially break above resistance levels. But these markets have not demonstrated that ability yet.

Immediate intraday support for the S&P 500 is 1,184-1,180.40. These prices are inside a layer of support that overlaps at 1,186-1,167, really all the way down to 1,160.36, which is why short-term downside is probably limited, because there is so much price traffic in this area. Next support is 1,142.05-1,090.19.

There are multiple layers of support for the Nasdaq, too. Immediate intraday support for the Nasdaq is 2,096-2,076.69. Another layer of support is 2,085-2,052.80 and that makes the 2,085-2,076 area a focus of support.

S&P 500 resistance is 1,185-1,195, then 1,205-1,209.53. There is more formidable resistance from July, 2001. The older the resistance, the less precise you can be, but here is the read from the 60-minute charts from July and August of 2001: resistance is 1,215-1,226.27.

Nasdaq resistance starts at 2,087 and gets thick at 2,097-2,118. Next resistance is 2,132-2,152, with a stacked shelf at 2,155-2,165.

Anytime resistance is exceeded it must be treated as support until broken. Anytime supports are broken they must be treated as resistance until exceeded.

Cherney is chief market analyst for Standard & Poor's

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