Wednesday's intraday price action -- a lift in prices which rolls over -- is usually not a healthy sign for short-term action because the higher intraday prices attracted sellers to the markets, not buyers.
Tuesday's overnight systems run issued a flag of warning. The markets may spend a couple of days trading sideways, or, more likely, prices will dip lower.
Immediate downside risk for the S&P 500 over the next 2 to 5 trade days is closing losses of as little as 0.6%, but more likely closing losses on the order of 2% to 5%, meaning S&P 500 closes in the 828-802 area.
These markets remain susceptible to headlines both good and bad and sentiment can turn in an instant forcing leveraged players to cover and enticing longer-term investors to try the long side.
At anytime over the next 7 trade days, if prices were to experience an intraday drop (S&P 500 intraday losses on the order of 1.2% or greater, at
least 10 points) and that dip in prices is able to attract buyers who can force an intraday recovery in price with a close in positive territory, it would be a sign that in the short-term (a few trade days), the bulls may have wrested control from the bears.
I think the bigger risk for right now is for lower closing prices over the next couple of trade days, but if the price pattern described in the paragraph which precedes this one is seen, the odds would shift in favor of a more positive tone in the short-run. Cherney is chief market analyst for Standard & Poor's