A Sudden Shift for Stocks

Wednesday's price action suggests there are still sellers who need to be satisfied

By Paul Cherney

This is option expiration week. We have already seen two days of extreme (relatively speaking) price moves. This might have forced leveraged players to exit positions and that does create some possibility for quieter trading on Thursday.

Right now, prices remain in the trading ranges, but Wednesday's inability to capitalize on the intraday reversal on Tuesday suggests there are still sellers who need to be satisfied.

The trading ranges are Nasdaq 1,968 to 2,021.82 and S&P 500 1,163.69 to 1,193.28. On the upside, it would take a close over Nasdaq 2,021.82 or S&P 500 1,163.69 to suggest higher prices. But after Wednesday's price action, I think it is the downside that should be the focus in the near-term.

The Nasdaq's recent low was 1,968.58, that was March 29, 2005. A close under this level would increase the chances for additional downside. There are two layers of support which were established in September and October of 2004, these layers are 1,971-1,899.33 and 1,925.85-1,852.59. The overlap is 1,925.85-1,899.33 and this represents strong support. Inside the first layer, the 1,971-1,899.33 area, there is especially thick support at 1,944-1,914 and if prices were to reach this area I think the shorts would be viewing it as a likely spot to do some covering.

If there is a close below S&P 500 1,163, that would increase the chances for a test of the next immediate layer of support at 1,147-1,120. If you look at a chart of the S&P 500 from September, 2004, until today, you will see a sharp advance starting at the end of October/beginning of November. Since that rise, the S&P 500 has put in a widely ranging consolidation. A close below 1,163 would represent a failure of support, opening downside risk for a test of the next layer of support at 1,147-1,120. There is a focus of support in this layer at 1,142-1,131

Immediate intraday resistance for the S&P 500 is 1,177-1,186.37. The next meaningful resistance is the top of the trading range at 1,190-1,193.28.

Immediate intraday resistance for the Nasdaq is 1,981-2,001.07.

The Nasdaq also has resistance at 2,006-2,008 and 2,006-2,014.31. The next important resistance is 2,017-2,027; resistance in this area thickens with prints of 2,023.00 and higher.

Cherney is chief market analyst for Standard & Poor's

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