Intermediate Term Remains Positive

Volume readings signal that the first retracement in prices should attract buying interest for a rebound

By Paul Cherney

From Cherney Market Analysis

This is still the case: the current markets have demonstrated price and volume action that usually mean that there is an underlying willingness to buy. The measures of buying and selling pressure I keep (up volume versus down volume) are nowhere near the levels of strength exhibited in the fourth-quarter rally of 2004, but the readings have registered thresholds that make me expect that the first retracement should attract buying interest for a rebound and a move to closes higher than those in place.

I do not start to become concerned about being wrong about the willingness to buy short-term dips in price when/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. 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 2,042-2,027 and this is the area that is most likely to attract buyers (if prices were to move that low).

Immediate Resistances:

Nasdaq: Intraday resistance established on Thursday: 2,072.54-2,077.47. The Nasdaq has unorganized, weak resistance at 2,075-2,078.94. The next, more important resistance is 2,083-2,097.80 with an especially well-defined resistance at 2,089-2,095.96. Nasdaq resistance actually runs to 2,072-2,103.45; the next layer above 2,103.45 is 2,106.19-2,116.75.

S&P 500: Intraday resistance established Thursday: 1,199.26-1,201.86. In addition, the index has an overlapping layer at 1,200.52-1,204.96. Resistance gets thick at 1,206.56-1,208.85. The bigger picture for S&P 500 resistance is 1,205-1,217, with a focus at 1,211.23-1,215.58. Next layer: 1,221-1,229.11.

• Nasdaq supports are: Immediate intraday 2,071-2,067.53, then 2,058-2,050. The index has thick support starting at 2,043 and running to 2,027. If prices move lower and test support at 2,043-2,027, this area on the chart should attract buyers for a rebound. Whether that rebound attracts enough followthrough to push prices above recent highs can only be assessed when the levels of participation in the rebound are measured.

• 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 4 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 15 trade 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 enough evidence to cause me to second guess this assumption, but if the Nasdaq posted 2 closes below 2,027, I think this would make my supposition of higher closes between now and the July 4 weekend wrong.

Disclaimer: Use of the information provided by Cherney Market Analysis, Inc., is subject to the Terms of Use contained on its website,

Cherney is president of Cherney Market Analysis

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