Downside Risk Increasing

Major indexes' gains on Tuesday morning made sellers more aggressive than buyers

By Paul Cherney

The Nasdaq has closed beneath 1,931.39 and that increases the chances for downside. Tuesday morning's rise into the intraday highs near 11:00 a.m. ET made sellers more aggressive than buyers. This pattern of behavior always suggests to me that there are probably more sellers yet to be satisfied, so upside appears to be a struggle and sometimes a shakeout or a day or two of determined selling can unfold to suggest that the overhead supply of aggressive sellers have lost patience to wait for a bounce to exit and they are selling into declining price.

The Nasdaq would have to close above Tuesday's intraday high of 1,958.58 and the S&P 500 would need to close above 1,164.80 to bolster confidence that short-term aggressive sellers have been satisfied. There is an additional problem, at or above Tuesday's intraday highs is another band of resistance created by the former trading ranges that broke during the week ending Apr. 15.

The former S&P 500 trading range is resistance at 1,163-1,193.28. Prints of 1,167 and higher are thick with resistance.

The Nasdaq's former trading range is resistance at 1,968-2,021.82. There is a layer of thick resistance at 1,972-1,985.

The S&P 500's immediate intraday resistance is 1,157-1,164.80.

The Nasdaq has immediate intraday resistance 1,938-1,958.58 with especially thick resistance 1,944-1,953.

S&P 500 support 1,152-1,136.22. The index also has support in the 1,147-1,120 area with a focus of support at 1,142-1,131, but a move below 1,136.22 would represent a new low for the current weakness.

Immediate Nasdaq support is 1,928-1,912. In a longer-term view of the chart, the Nasdaq has two layers of support that 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 still represents very strong support, but if the recent low print of 1,904.27 is undercut for more than a few minutes without attracting buyers then followthrough lower might cause a capitulation of selling that forces Nasdaq prices under 1,889 in search of buyers.

To my readers: The last publication date for my comments at S&P and BusinessWeek Online will be Monday, May 2, 2005. I feel privileged to have contributed to the Standard & Poor's tradition of objective, independent research, but I am moving to new fields of endeavor outside of S&P. Thank you for your readership.

Cherney is chief market analyst for Standard & Poor's

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