Short-Term Downside Still Possible

The first retracement should attract buying interest for a rebound

From Cherney Market Analysis

It would be natural to have a little more downside, but the measures of price momentum and volume momentum (up volume versus down volume) achieved over the last two to three weeks keep my expectations tilted to favor that the short-term profit-taking will find a floor and then prices will rebound.

For Tuesday, I expect downside and a lower close, but if the indexes start to print above the Nasdaq 2,085.77 or S&P 500 1,202.84, then I have misjudged the short-term forces at work in the markets and higher prices will probably gather some momentum.

Price and volume action like that seen in the past few weeks usually means that there is an underlying willingness to buy. The first retracement should attract buying interest for a rebound. I can't really call Monday's price action a retracement, but if there is a drop in prices, I do not start to become concerned about being wrong about the willingness to buy short-term dips in price when and if the Nasdaq posts a close that represents a loss of 2.5% from its highest close. For the current market, that would be equivalent to a Nasdaq close under 2,045, but I have to add that markets are not obliged to comply with my expectations for performance. I also like to employ observations of chart support and in my view of the Nasdaq, the key chart support is 2,042-2,027. So, even if there is a close under Nasdaq 2,045, the key chart support for the Nasdaq is 2042-2027 and this is the area that is most likely to attract buyers (if prices were to move that low).

Immediate intraday support for the Nasdaq is 2,076.80-2,067.23, the 2,067.23 was undercut briefly in Monday's session but buyers lifted prices. The intraday low from Monday now becomes the new "lower edge" of support, so support is 2,076.80-2,066.36. Technically, though, because 2,067.23 was undercut for more than 4 minutes, in my view of the markets, there is short-term downside risk for prints 2,057-2,050. Due to Monday's dip and rebound, the Monday's intraday low of 2,066.36 now becomes the potential short-term break-point for lower prices.

The S&P 500 has numerous layers of support and it is usually difficult for markets to just slice through layers of support like this.

Immediate intraday support for the S&P 500 is 1,197.39-1,191.03, there is a layer of support that overlaps at 1,194-1,185.19 which makes the 1,194-1,191.03 area a focus of intraday support. On Monday, the intraday low for the S&P 500 was 1,192.75, prices were unable to print below the 1,191.03 level.

There would be some concern for a short-term shakeout if the S&P 500 spent more than four minutes below the 1,185.19 level, but supports are stair-stepped and stacked, offering numerous price levels to entice buying participation. The support of 1,194-1,185.19 is overlapped at 1,187-1,180.87, which creates another focus of support at 1,187-1,185.19. A move below 1,180.87 would not be healthy, and could ignite some fear driven selling, the next layer of substantial support, though, is directly underneath 1,180.87 at 1,178.87-1,165.

I still expect that sometime over the next 18 trading days, there should be an S&P 500 close at or above the 1,215.00 level and a Nasdaq close at or above 2,119. Every day the markets deliver new information that either confirms or contradicts assumptions in place: so far, I have not seen anything to cause me to second guess this assumption.

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