Markets Ripe for More Gains

But hesitation ahead of the FOMC meeting on Tuesday could cap the upside in the short term

By Paul Cherney

Note to 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.

The markets appear to be ripe for additional upside of more than just a day, but hesitation ahead of the FOMC meeting on Tuesday can cap the upside short-term.

The S&P 500 has not printed below the 1,136.22 level (a sign of buying interest because prices did not move to new "bargain prices" under the recent low print of 1,136.22) and Friday's probe lower by the Nasdaq stopped right at the top edge of support and attracted buyers. Friday's decline in crude oil futures to under $50.00 a barrel helped spur buying interest.

Inside Friday's session, there was more selling in the Nasdaq, but prices stopped dropping at 10:51 am ET, the low print was 1,889.83, right at the top edge of support. Buyers took control and brought volume.

Nasdaq support looks extensive in the 1,893-1,852 area, with a well-defined layer 1,889-1,867.

Friday's price action in the Nasdaq also delivered a positive divergence between Nasdaq price and the 14-day RSI indicator. I view this as potentially bullish. Not all positive divergences lead to higher prices, but this technical condition will be recognized by many technically oriented traders and investors, and many of them will be adding themselves to the pool of potential buyers.

Nasdaq resistance is the former trading range: 1,904-1,962, with especially thick resistance 1,929-1,937.

The S&P 500 could not even print below its recent low close of 1,137.50, so it technically remains in its trading range of 1,136.22-1,164.80.

Immediate intraday resistance for the NASDAQ is 1,913-1,927.31, S&P 500 1,157-1,164.80 with especially thick resistance 1,159 and higher.

S&P 500 support is 1,155-1,146 overlapped at 1,152-1,136.22 which makes the 1,152-1,146 area a focus of support. 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 and open downside risk for a test of the 1,127-1,120 area (not expected).

Nasdaq support is 1,893-1,852, with well-defined support 1,889-1,867.

Cherney is chief market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.