Some Weakness Likely
By Paul Cherney
Friday's economic reports were not negative. Sometimes, markets just need to consolidate gains. One reality apparent was that the signs of economic strength might have started a more protracted move higher in 10-year Treasury yields.
Breadth measures for the Nasdaq and the NYSE have started to exhibit configurations that usually precede choppy price action and some price weakness, but there has not been a break-down yet.
August starts next week, and earnings reports will start to thin. The markets will start their search for the headlines to inspire buying in a vacation-thinned environment.
I would become concerned about a shift toward profit-taking if the Nasdaq posted a close under 2165.44. The index has a focus of support 2167-2165.44. This area has been tested several times and has held, so it has become an important layer of support because these prices are where buyers have consistently bought the market and pushed it higher; if there is a Nasdaq close below this area, that would suggest to me that a shift in sentiment has occurred (because if prices closed below 2165.44 it would mean that people are no longer willing to take a long-sided chance at those levels.) For the S&P 500, I would become concerned about a shift in sentiment if the index posted a close below 1219.80.
Right now, I think the VXO volatility index has to move back below 10.56 just to suggest upside.
Immediate Intraday Resistances:
• Nasdaq immediate resistance established in Friday's session is 2192.93-2201.39. Next intraday resistance is 2205.54-2264.58, with a distinct layer of resistance 2211-2249; a focus is at 2211-2233.33. Please understand that the longer back in time you pull the prices for support or resistance, the less precise they are because the most immediate price action carries the most immediate importance. The prices I am using for resistance are based on intraday charts from May and June, 2001, a little more than four years ago.
• S&P 500 intraday resistance established on Friday and Thursday of this past week is 1240.90-1245.15. The next focus of resistance above 1245 is 1249.23-1267. This area looks like a natural stopping point to me, but the markets would have break supports or issue some other technical evidence of weakness to suggest that this area was a short-term top. Prices can still move into this zone but I think some choppy, uncertain trading might be on the menu for next week.
Immediate Intraday Supports:
• Nasdaq support: 2175-2165.44, overlapped at 2167-2144.78.
• The S&P 500 has immediate intraday support at 1239.04-1230, overlapped at 1231.79-1223.03, which creates a focus of support at 1231.79-1230.00. There is a thin shelf at 1219-1215; the next meaningful support is 1206-1183.
• S&P 500 resistance is 1232-1286.62, with a focus of resistance at 1249.23-1267.
• Nasdaq daily charts resistance above 2193.19 becomes thick at 2263.75-2328.05.
Cherney is president of Cherney Market Analysis