More Downside Likely

A retest or a slight undercut of the lows established on Mar. 29 is still likely

By Paul Cherney

It was not the market's reaction to the nonfarm payrolls number that dictated price action on Friday, it was the negative reaction to the jump in the prices paid index of the ISM Index combined with the inflation fears created by a surge to new highs in crude oil futures that put the sellers in control.

These technical observations remain valid: No two markets are ever exactly the same, but after reviewing similar technical conditions in the past eight years, a retest or a slight undercut of the lows established on Tuesday, Mar. 29, is still likely. The lows from Mar. 29 were Nasdaq 1968.58, S&P 500 1163.69.

I would start to doubt those concerns if the S&P 500 moved higher and closed above 1,193, or the Nasdaq closed above 2,027. I would start to doubt concerns about a retest or undercut of Tuesday's lows if either of the indexes has two closes above their respective 20 period exponential moving average. The 20 period exponential moving average for the S&P 500 is 1,184.38, for the Nasdaq it is 2,014.73.

Here are intraday support levels: immediate intraday support for the S&P 500 is 1,174.08-1,169.14. Immediate intraday support for the Nasdaq is 1,988-1,980.07.

Anytime supports are undercut, they must be treated as resistance until proven otherwise.

The Nasdaq has support at 1,981-1,900, there is a focus of support in the 1,971-1,954 area and even with a failed rebound, I would expect this area to support a retracement. The 1,971-1,954 focus of support is inside the broader immediate support of 1,981-1,900.

Immediate support for the S&P 500 (in addition to the intraday support mentioned above) is 1,179-1,160.52. The S&P 500 has a concentration of support at 1,169-1,163. If the index were to have a close under 1,160.52, in my opinion, that would open downside risk for a test of the next layer of support at 1,147-1,120, with a focus of support 1,142-1,131.

The Nasdaq has resistance at 1,986-2,008.63, stacked and well-defined at 2,006-2,017.66, making a focus of resistance 2,006-2,008.63. A close above 2,008.63 should force a wave of buying at the open on the following trading day. Nasdaq prints 2,016 through 2,027 are thick with resistance and the first move into this area is likely to be repelled unless it is accompanied by a headline that virtually everyone recognizes as bullish. This level was almost tested in Friday's session when the Nasdaq printed an intraday high of 2,014.73. Next resistances are 2,036-2,059 and 2,047-2,069.42, which makes the 2,047-2,059 area a focus of resistance. Additional resistances are directly over the 2,069 level at 2,078-2,093.68 and 2,101-2,111.43.

The S&P 500 has immediate resistance 1,178.82-1,189.80, there is a particularly well-defined layer of resistance at 1,183.78-1,188.40 (generated ahead of the FOMC announcement on Tuesday, Mar. 22). Next resistances are 1,190-1,194.84, then 1,199-1,210; resistance gets thick at 1,204-1,210.54. There is broad resistance at 1,206-1,229.11, which has a focus of resistance at 1,213-1,219. Above 1,229, the next layer of resistance is 1,240-1,286, with a focus at 1,246-1,261.

The 10-day exponential moving average of the VXO was 13.43 as of Friday's close. The 30-day exponential was 12.93 as of Friday's close. I think it would be an intraday positive if the VXO could start to print below 12.93, preferably below 12.88 (chart-read). When the VXO moves lower, stock prices are usually moving higher. When the VXO moves higher, stock prices are usually moving lower.

Cherney is chief market analyst for Standard & Poor's

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