By Paul Cherney The technical condition of the markets is neutral with a slightly negative bias, but the VIX (market volatility index) hit intraday highs on Monday which could be followed by a little more upside relief for equities on Tuesday.
The markets may have started a protracted correction which could see the S&P 500 print under 950, maybe a retracement to the 930-910 area. Other technical conditions might change this view, and oversold rebounds are always part of such a decline, but these markets have not seen a one-third or a 50% retracement for the move up since March's lows, and retracements like that are common.
In Monday's markets, the S&P 500 printed below 974 and then experienced an oversold bounce. In terms of my interpretation of the chart, odds have increased that the next support under 974, which is 970-962.10, will probably give way if visited again.
We are entering the doldrums of August and prices might move in a dull sideways trend with a negative bias. The short interest in the Nasdaq might contribute to a dull sideways and lower market because dips in price might be used by some bears to buy to cover existing short positions, stemming the descents and prompting short-lived rebounds in price.
resistance has proven itself to be formidable.
The Nasdaq has big resistance: 1722-1758. Inside this layer of resistance is a focus of resistance at 1737-1753.
Immediate intraday resistance for the S&P 500 is 984-991. The S&P 500 has big resistance at 988-1015.41. Its focuses of resistance are 993-1000, 1005-1008, and 1010-1015. 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 at 1020-1031. If you look at the overlap of resistances, the 1008-1015 layer is the immediate stumbling block for S&P 500 prices.
On an intraday basis, it would take a Nasdaq move above 1727.06 to increase the odds of another follow-through higher; the next resistance is 1733-1750.
It would take a move above S&P 500 985.25 to possibly trigger another intraday squeeze; the next resistance is 989.62-1000.70.
Supports: Any weakness Tuesday morning (not associated with a catastrophic headline) is probably going to satisfy short-term selling pressures and the prospects for a rebound in prices with modest gains on the day appears real.
The S&P 500 has an important layer of
support at 988-974. That level was broken intraday. At this time I do not think the markets will be able to rebound in a signficant fashion and the current bounce should run out of momentum. When and if the thin shelf of support at 970-962.10 is tested again, I expect it to fail and prices will probably have to test 949-912 support. This scenario would not have to unfold one trade day after another, (not down, down, down every trade day); short-term oversold rebounds in price are natural.
The Nasdaq has immediate support at 1715-1710. Additional supports are 1703.62-1695.20, then 1687.94-1675.18. The bigger picture for Nasdaq support is 1699-1653; there are multiple layers of support inside this broad band including 1686-1653, with a focus of support at 1682-1664. The overlap of these shelves of support is 1686-1682, which should carry some importance. If prices spent time under this level, I think the odds would increase for a break below 1675.
Due to the nature of the rise since the March lows, Nasdaq supports are stacked. The next support is 1648-1597, which makes the prospects of a severe, gut-wrenching decline unlikely because there has been so much price action at these levels on the charts (many price points offer lots of people lots of different sets of numbers to try to pick a bottom). Cherney is chief market analyst for Standard & Poor's