One of the potential problems with Friday is that some of this expected buying is just going to be bears booking short-side profits and the lift might not attract terrific follow-through. This is also a Friday in the summer when afternoon trading volumes can be thinned by early escapes for the weekend, which adds another little wildcard.
I will be looking at the VIX (market volatility index) and put-call ratios for some insight into whether the buyers can prevent another day like Thursday from unfolding. If there is a drop at the open (which would be the preferred scenario),it would be better to see the CBOE total P/C ratio jump above 0.90, preferably over 1.00. The equity only P/C ratio should move above 0.85, preferably above 1.00. If there is a price advance, I will be looking to the VIX and that number should be heading lower, at least under 21.00, preferably under 20.88.
There should be a positive underlying trend in place over the next couple of weeks. Right now the markets are trying to work through a short-term minor overbought condition. So far, the retracement has not broken through any envelopes of normalcy in terms of a consolidation after a run-up. I would become concerned that a bigger decline might be in the making if the Nasdaq dropped to print under 1660 without attracting buyers immediately.
Resistance: The S&P 500's immediate intraday
resistance starts at 998 and becomes very thick at 1010-1015.33. The bigger picture of resistance, which was established by price action in June, 2002, is that the S&P 500 has a band of resistance at 1008-1041, with a focus of 1020-1031.
The Nasdaq has immediate resistance at 1722-1748; it actually runs all the way to 1758.18. The next layer of resistance is 1778-1829.58. There is a gap in the price chart which runs from 1778.80 to 1796.46, which was created by a downward gap at the opening on Apr. 22, 2002. Sometimes the first print inside a gap like this will draw sellers.
Support: The Nasdaq has immediate intraday
support at 1735-1713, then 1715-1693, which makes the 1715-1713 area important support. Additional support is 1684-1648. I think it would be unhealthy if the index printed below 1660 without attracting buyers immediately.
Immediate intraday support for the S&P 500 is 990-983.63, then 980-962.10. I think it would be unhealthy if the index printed below 960 without attracting buyers immediately. There is a big band of support for the S&P 500 at 948-912. Cherney is chief market analyst for Standard & Poor's