By Paul Cherney The technical condition of the market remains negative, but the descent has stalled.
Even though the current weakness is losing downside momentum, there is still downside risk for S&P 500 prints under 950, maybe a retracement to the 930-910 area. These markets have not seen a 1/3 or a 50% retracement for the move up since March's lows, and retracements like that are common.
Intraday indicators based on 60 minute bars improved on Thursday and there is a technical case that can be made for higher prices on Friday, but it would take a NASDAQ close above 1675 and/or an S&P 500 above 985.75 to raise questions about concerns for an S&P 500 test and possibly a close in the 948-912 area of support. End-of-day chart patterns of indicators based on combinations of price change, volume and breadth suggest that even a counter move (a drift higher) of as few as 1 more or as many as 4 more trade days probably will not garner significant followthrough to turn prices higher for an upleg which breaks out to the upside.
The reaction to the 10-year auction was a modest positive in Thursday's market. On Friday, the auction will be history and the primary dealers will be looking for buyers in the retail aftermarket. If there is no interest in the 10-year on Friday and prices drop as dealers get rid of inventory, yields will move higher, this could be a factor limiting the upside for stocks on Friday.
There are times when bond prices drop and stock prices rise because money is moving out of the safe haven of bonds and into equities, but since yields have sky-rocketed (since June 13), pushing mortgage rates higher, the current concerns are that higher rates might choke off the economic recovery (true or not does not really matter, that is the psychological factor at play), so if there is a soft after-auction market for the bonds on Friday, that could easily push stock prices lower.
RESISTANCE. The NASDAQ has immediate intraday resistance 1666-1675.46, an intraday move above 1675.46 might generate enough followthrough to see prices test the next layer of resistance which is 1687-1723 with a focus 1695-1703. The NASDAQ has major resistance: 1722-1758. Inside this layer of resistance is a focus of resistance 1737-1753. I think it would take a headline universally recognized as bullish to move prices up to the 1690 or higher area.
Immediate intraday resistance for the S&P 500 is 973-980 then 984-991. The S&P 500 has brick-wall resistance 988-1015.41. It's focuses of resistance are 993-1000, 1005-1008 and 1010-1015. The bigger picture of resistance which was established by price action in June of 2002 is that the S&P 500 has a band of resistance 1008-1041 with a focus 1020-1031. If you look at the overlap of resistances, the 1008-1015 layer is the immediate stumbling block for S&P 500 prices.
SUPPORTS. The S&P 500 has a thin shelf support 970-960.84. I still expect this level of support to fail and prices should test 949-912 support. This scenario does not have to unfold one trade day after another, (not necessarily down, down, down every trade day), short-term oversold rebounds in price are natural.
The NASDAQ has a focus of immediate support 1643-1623, this is within the broader 1648-1597 layer of support. Unless there is a big change in the technical measures, downside risk remains open for another test and a close inside the 1648-1597 support. Cherney is chief market analyst for Standard & Poor's