By Paul Cherney If you calculate the gain that the Nasdaq made from its 2291 close on Jan 2 (the day before the Fed's first set of rate cuts), the index had gained 23.8% into its 2838 close on Tuesday.
The move lower in the Nasdaq after the rate cut announcement on Wednesday was perfectly natural profit-taking. The market got what it had already priced itself for (a 50bp rate cut) and shorter-term traders took profits which had built up over the past 4 weeks.
Now what? I think there is a good chance that the Nasdaq will move into a trading range bounded by 2700 (roughly) and 2900 (roughly) for the next few trade days.
Wednesday's Nasdaq close was near the lows of the session, therefore I would be reluctant to embrace any opening strength on Thursday as the beginning of an uninterrupted (all day long) advance. Usually, when a major index closes at the lows of the session, opening strength is short-lived and the index will dip back into negative territory in an intraday shake-out.
I am expecting additional downside on Thursday (for the Nasdaq). If prices can gap lower at the open and then move lower, an intraday rebound could unfold (after the first 30 or 40 minutes of trading). At the close (Wednesday), the Nasdaq was in a test of support 2796-2763. The 2763 level appears doomed for failure. I think Nasdaq prices should undercut the 2763 level on Thursday.
The next layer of support is 2743-2686.65 and I think that prints in this area will generate some buying interest (stem the selling for the day). But, a rebound will probably be full of fits and starts because if there is one thing this past year's Nasdaq market should have taught people it is that a profit is not a profit unless you close out the position and that means selling a long position so I expect that any intraday rebound in prices will be a staggered affair.
Immediate Nasdaq resistance is 2804-2827 then considerable resistance is 2840-2873. The Nasdaq has stacked resistance and the next layer is 2873.64-2892.36 (unlikely to see these prices on Thursday or Friday).
The S&P 500 STILL has immediate support in the 1368-1353 area with a focus 1365-1361. Supports are stacked with the next support in the 1350-1339 area.
The S&P 500 has a substantial layer of resistance in the 1351-1389 area. The next resistance is 1414-1439.
For interested readers, I will be a guest on Bloomberg TV on Thursday morning, Feb. 1, at 7:09 am EST (also carried on USA Network at that time of the morning). Cherney is market analyst for Standard & Poor's