Price and Volume Measures Falter

Though technical conditions have weakened, there are no overtly negative readings right now

By Paul Cherney

From Cherney Market Analysis

The technical conditions of price and volume that supported the potential for an extension higher have weakened significantly and by some measures are simply no longer in place. Outright negative readings have not been registered, but Tuesday's price action makes me think that even if there is a short-term rebound, tomorrow or Thursday, the counter move up off the Apr. 15 volume capitulation low has failed. It would take an S&P 500 close above key resistance at 1178-1184.70 to force prices higher. It would take a NASDAQ close above 1981.45.

Cisco Systems (CSCO ) reports and has an analysts' call after Tuesday's close. There is always potential for a reactionary move higher in the markets, but the earnings season that is drawing to a close has been littered with reports of improved earnings and less than stellar guidance and/or stock price reactions.

If the overnight news is unable to generate buying interest, prices might only decline back into the NASDAQ 1959-1889 area, or the S&P 500 1163-1136 area and meander sideways waiting for buyers to re-group in response to signs of lower inflation, and perhaps waiting for a dramatic drop in oil futures. But at this time, the upside appears doubtful short-term.

The S&P 500 has immediate resistance 1166-1172 and then a key resistance level at 1178-1184.70. Next resistance is 1198-1215. In this area, resistance gets thick with prints 1205 and higher.

The NASDAQ has immediate intraday resistance 1970-1981.45. On the daily chart, resistance for the NASDAQ is 1968-2021.82, but inside this resistance there is an especially well-defined (strong) layer of resistance at 1989-2007.24. The NASDAQ's immediate obstacle is to move above the 1981.45 level to force additional buying interest.

Once resistance levels are exceeded, they convert to support until proven otherwise. Once support levels are undercut they convert to resistance.

Immediate intraday support for the NASDAQ is 1969-1960.27, intraday support is stacked at 1959-1951.49. This layer was tested and held on Tuesday, but another move into this level that sees prices undercut the intraday low of 1957.29 for more than 4 minutes would increase the chances for additional downside and a move deeper into the support that is 1959-1889.

S&P 500 support is considerable (strong) at 1164.80-1139.20 additional support is 1142-1102. Even though the upside momentum of price and volume measures have weakened and are no longer technically favoring upside, there are no overtly negative readings right now, so it is possible that potential downside is limited to a move under 1164 where the index attempts to find its footing.

Cherney is president of Cherney Market Analysis

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