By Paul Cherney The equity markets have reached short-term oversold conditions which usually produce a day of gains. If there is an early morning shakeout, bears who are short the market will probably use the lower prices as an opportunity to book profits and a reversal in prices would likely follow.
I think the likelihood of a full blown capitulation (high volume and plunging prices which reverse course) is extremely low. I am in the process of putting a report together on the price action in the S&P 500 when the Investor's Intelligence Bearish advisors percentage is 25 and lower. I do not have percentage change levels quantified yet, but after eyeballing the charts it looks like sideways consolidation is the most likely course for the S&P 500 when bears are are 25% and lower. Right now, the Investors Intelligence Bearish Investment advisor's percentage is 23.2. There will be a new number on Wednesday.
The NASDAQ has a band of support in the 1996-1955 area, there is a focus of support 1976-1955. In Tuesday's market the NASDAQ tested the next layer of support in the 1944-1934 area and buyers emerged, (the NASDAQ's low print on Tuesday was 1939.28). This price action reinforces the importance of this price area. The next layer of support is in the 1907-1860 area (not expected to be tested on Wednesday).
The NASDAQ has immediate resistance 1971-2047 with a focus 1994-2016. Additional resistance is 2069-2105 with a focus 2069-2083.
The S&P 500 now has immediate resistance 1174-1184. Next resistance is 1196-1218. (There is
a brick wall of resistance in the 1227-1242 area.)
Immediate S&P 500 support is 1170-1139 with a focus 1157-1144. Cherney is Market Analyst for Standard & Poor's