Crude Retreats, Stocks Advance

A short-term lift in equities will ultimately give way to short-term profit-taking

By Paul Cherney

From Cherney Market Analysis

Note: Paul Cherney will be on vacation Thursday, Sept. 1, and Friday, Sept. 2. His column will resume on Tuesday, Sept. 6.

We have to face the reality of what the market is showing us: If these markets couldn't move appreciably lower while crude oil was printing above $70.00 a barrel on Tuesday, you have to expect a move higher if crude futures continue to see profit-taking. Vacation thinned trade can make for some erratic price movements, but right now, downside appears limited in the short-term and additional gains appear likely. But Thursday and Friday of this week can see closes in opposite directions.

The technical conditions (as I measure them) are not dire, the markets are short-term oversold on several measures and prices should still edge higher.

Crude oil made its visit to the above-$70.00 neighborhood and now there is some profit-taking in the futures, this should be a supporting factor for stocks in the short-term (1 or 2 trade days).

I still do not think that the indexes can generate a significant run higher (a trend) at this time (over the next 5 to 7 trade days), but additional upside appears likely in the short-term. The Nasdaq should be able to close above the 2158 level, but prices at the gas pumps should have a psychological effect and right now I am thinking that a short-term lift, will ultimately give-way to short-term profit-taking and additional basing action. At this time I do not think that support at S&P 500 1206-1183 will break. I do not think that Nasdaq support at 2106-20756 will break. These price levels should provide a bounce if tested.

I still do not think that the S&P 500 can close above the 1228.96, but if it does, I would expect a small leg higher. The Nasdaq is the index that has the greater potential to move higher. It has not tested the 2106 (or lower) and it might not, I expect a close above the 2158.99 level which would force some short-term covering and a spike higher, but there would have to be some change in the Fed's rhetoric for prices to extend significantly higher.

I would still like to see some sort of a definitive sign of absolute capitulation for the equity markets. Some sort of an extreme reading that suggests that some portion of the investing public has thrown in the towel. Readings like that might be hard to come by during this summer vacation period.

Immediate Resistances:

• The Nasdaq has resistance 2146.49-2157.98, the focus of resistance is 2151-2158. Next resistance 2165-2185.91, resistance gets thick 2177.85 and higher. Anytime immediate resistances are exceeded, they convert to supports until proven otherwise.

• S&P 500 resistance is 1222.50-1225.08, and 1222.64-1227.61. A focus of resistance is created by the overlapping ranges at 1222.50-1225.08. Resistance is stacked and formidable at 1229-1239.76, but I think there would be additional upside if the S&P 500 posted a close above 1228.96. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62, but resistance runs all the way 1245.81. The next focus of resistance above 1245 is 1249.23-1267.

Immediate Supports:

• Nasdaq support is 2138.46-2130. stacked at 2128-1212. Next meaningful support for the Nasdaq is 2106-2039 with a focus of support 2106-2076 (very strong and should hold). This has not been tested yet.

• The S&P 500 has support 1219-1215 then 1206-1165 with a focus of support 1206-1183. This is a very strong layer of support, if prices drop under 1200, prints 1198-1194 should attract buyers again.

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Cherney is president of Cherney Market Analysis

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