Downside appears limited based on observations of S&P 500 chart action in the trade days leading up to 1991's Desert Storm, (the comment on the 1991 chart remains at the end of today's column).
A price range ahead of an anticipated event is evident in today's markets, and this is a similarity with 1991. I would expect a sharp jump in prices if some of the uncertainty between the U.S. and Iraq is resolved, just because there are so many bears who have short-side bets in place and they will have to buy to cover once prices move higher. On the charts it looks like S&P 500 prints above 844.60 and Nasdaq prints above 1343 should prompt some buying.
Immediate intraday support for the S&P 500 is 826-815, with a focus of 826.66-818.70. Next S&P 500 support is 806-768.
The Nasdaq has immediate intraday support at 1309-1295.06; additional support runs all the way through 1279 with a focus of 1296-1287.
The S&P 500 has immediate resistance at 833-844.60
The Nasdaq has immediate intraday resistance at 1318-1332; more substantial resistance is 1335-1343. If the index prints above 1343, a short-squeeze could propel prices to the 1355-1379 area.
These comments from Tuesday's column still apply: If the S&P 500 can move above the 844.60 level it will convert 838-844.60 to support. The next resistance is 853-869, and inside of this layer is an especially thick layer from 857-862. If there are prints above the 852.87 level, there is the potential for a more exaggerated short-squeeze which could see an intraday surge to prints near 870.
In the last seven trading days before 1991's Desert Storm, the S&P 500 traded in a sideways manner in a roughly 3.7% range. For this market (assuming that the highs of the past seven trade days represent the upper edge of a range), a 3.7% range would equate to an S&P 500 price range of 852.87-821.31 (852.87 represents the highest high of the past six trading days) The 821.31 represents a 3.7% decline from 852.87. So far, the swing low of the past seven trading days for the S&P 500 has been 818.54, which is very close to the range seen in 1991. Trading ranges represent market indecision, prices do not trend higher or lower, they move sideways as bulls and bears battle without either establishing dominance. Cherney is chief market analyst for Standard & Poor's