Short-Term Upside Likely

The Nasdaq has had a close above the 2158 level, and some follow-through higher is expected

By Paul Cherney

From Cherney Market Analysis

It was the trend higher in crude oil and gasoline futures that hurt the markets, but now profit-taking has entered the energy commodities. Under these circumstances, equity indexes should benefit.

I still do not think that the indexes can generate a significant run higher (a trend) at this time, but additional upside appears likely in the short-term. There is a short-term positive bias in place and my measures of momentum for the broader indexes (Russell based) are positive.

The Nasdaq has had a close above the 2158 level, and some follow-through higher is expected. If the index produces a close above 2185.91 I would view that as another positive development.

I was wrong about the ability of the S&P 500 to close above the 1228.96 level. (I didn't think it would.) This was the product of flawed logic. It is dangerous to apply too much logic to the markets, I erroneously made the assumption that the profit-taking in energy futures would force profit-taking in the energy related sectors. One of the interesting aspects of Tuesday's session was that even though the energy futures saw profit-taking, the energy sector and the oil services stocks finished the day higher, perhaps a sign that even though the futures saw profit-taking, the secular story for higher prices remains the mantra for longer-term investors.

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 and I do not expect them to be tested in the short-run.

I am no longer concerned (short-term) with seeing some sort of a definitive sign of absolute capitulation for the equity markets.

Immediate Resistances:

• The Nasdaq has resistance 2165-2185.91, resistance gets thick 2177.85-2185.91. Anytime immediate resistances are exceeded, they convert to supports until proven otherwise.

• S&P 500 resistance is formidable at 1229-1239.76. 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 intraday support is a think shelf 2163-2159.16, prints below this level for more than 4 minutes would increase the chances for a test of the gap created by Tuesday's surge at the open. That gap is 2147.31-2141 (intraday charts).

• Nasdaq support is 2158-2140 and 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). Has not been tested.

• The S&P 500 has support 1228.96-1218, overlapped at 1219-1215. Next support 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 (not expected under current conditions without a headline).

Here are some September facts based on S&P 500 price data from 1972 TO 2004. Please do not view these September facts as a prediction of price action. These performance notes are a chronicle of what has happened in the past. Every market is different and even if every single September in the history of the S&P 500 was a down September, that does not mean that every single September in the future would be a down month. People ask, so I provide the data.

• Average performance (of all 33 Septembers in the study) has been a loss of 1.17%.

• The month has been a gainer 12 out of 33 years, or 36% of the time.

• The month has been a loser 21 out of 33 years or 64% of the time.

• There have been 14 times since 1972 that September has followed a 22 trade day period of a net loss (the case this year), when that has occurred, the month of September has posted a closing gain for the month 7 times, a closing loss 7 times. It's a coin-toss.

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

Before it's here, it's on the Bloomberg Terminal.