Friday brings the January Employment report which might offer some short term relief from the selling (if the Street likes the numbers), but the current weight on sentiment (in part) is being fueled by the uncertainties about the Iraq situation and until there is some sort of resolution of that situation, the markets will probably be at the whim of short-term traders (as opposed to long-term investors).
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.
Thursday's S&P 500 close represented more than a 61.8% retracement of the gains seen from the October lows to the December highs, and this is tilting the scales in favor of a test of support established at the October lows, meaning 806-768. There is no timetable for a potential test and a rebound to print 870-890 could unfold any day.
The VIX remains above its 10 day exponential moving average and even though this indicator will lag a turn in the market by a couple of days (at times) it remains at unhealthy levels. (The VIX's 10 day exponential moving average was near 35.72).
On a short-term basis, on Friday, if the employment report inspires investors, a rebound in prices similar to the rebound seen on the day of Colin Powell's speech is possible.
The Nasdaq has immediate intraday support at 1298-1265, with a focus of support at 1298-1280.
The Nasdaq has a well defined shelf of resistance 1302.80-1310.97. If prices gap above this level (if there is a bullish headline related to Iraq or the Street likes the employment report) then this level will act as support for Friday's session and there could be an intraday short-squeeze. Immediate resistance above 1310.97 is 1333-1345. The index has substantial resistance at 1358-1383.
The S&P 500 has a small shelf of resistance at 838-845.88. If prices were to gap higher on Friday, this level would act as support. Next resistance (intraday) for the S&P 500 is 857-868.62, and becomes thick at 862-868.72. Cherney is chief market analyst for Standard & Poor's