More Gains Likely Thursday
By Paul Cherney
The price action on Wednesday was positive, but the volume was unimpressive because it was too low to suggest that there was a headlong rush in off the sidelines.
Another day of gains on Thursday is likely but the indexes are fast approaching strong well-defined resistance levels that should repel a first test. Those well-defined resistance levels are Nasdaq 2,072-2,116 and S&P 500 1,180-1,195.98.
I have not seen enough compelling evidence of strong buying demand to expect that the current lift can blossom into a protracted trend higher, but this is a bottoming process, I think it has limited downside risk.
The S&P 500 has a thin line of support at 1,169-1,160.52. It held its first test on Monday and Tuesday of this week, but it would probably not be healthy for bulls to see a close under 1,160 (not really expected); that would create an oversold condition that should compel a short-covering rebound. If there were a close under 1,160, that would increase downside risk for a test of the next layer of support under 1,160.52 which is 1,142.05-1,090.19, and I think prints at the upper edge of this zone would be viewed by the markets as a buying opportunity.
Short-term measures were oversold and a rebound this week was a natural, but it would take a close in the S&P 500 over 1,195.98 or a close in the Nasdaq above 2,106.19 to increase the chances for a small leg higher (doubtful). It would require price breaks above resistances (S&P 500 1195.98, NASDAQ 2106.19) on good volume to extinguish intermediate-term measures that the current state of distribution is fading.
S&P 500 immediate resistance is 1,174-1,182.52, then 1,180-1,195.98, which makes the 1,180-1,182.52 area a focus of resistance. Next resistance above 1,195.98 is 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 resistances are 2,032-2,056 and 2,045-2,065, and that makes the 2,045-2,056 area a focus of resistance. Well-defined (strong) resistance established Jan. 4 through Jan. 20 is 2,072-2,116. Inside this is a ledge at 2,086-2,103.
Immediate Nasdaq support is now 2,028-2,008.
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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