Tuesday's price action must be treated as a bullish breakout of the trading range until it proves otherwise.
A measurement of the Nasdaq price range of 1,865 to 1,938 -- 73 points -- added to the 1,938 level, equals 2,011. This calculation is how some chartists would create an upside target for the Nasdaq if there is going to be a successful run after Tuesday's bullish breakout. The same calculation performed on the S&P 500 would equate to an S&P 500 level of 1,136.
resistance for the Nasdaq is being tested at 1,966.66-1,975.57. On Wednesday, the Nasdaq's intraday high was 1,975.86. The next resistance is 1,989-2,009.11.
Immediate intraday resistance for the S&P 500 is 1,107-1,117 and 1,116-1,129.25, which makes the 1,116-1,117 area an overlapping focus of resistance and a possible short-term stalling point. Wednesday's intraday high for the S&P 500 was 1,116.71. The S&P 500's next layer of resistance above 1,116-1,129.25 is 1,135-1,149.
Some portion of the buying on Tuesday was bears being forced to cover their short positions, and the impact from that is over. A short-covering lift like Tuesday's can only blossom into additional upside if longer-term investors are convinced that there is something more to the upside. They have to step to the plate and become buyers as short-term traders who jumped on Tuesday's intraday momentum train take profits. When the longer-term traders are firm believers in the upside, prices will not retrace into the price bar on the day of the initial buying thrust, but these markets have already done that.
It is natural to see some retracement into the price range established on Tuesday. It is important for the short-term bullish case, though, that the lows from Tuesday not be undercut. The lows were Nasdaq 1,913.73 and S&P 500 1,090.74. If the lows are undercut the odds skyrocket that Tuesday's lift was a false breakout. I think there is more to come on the upside but that does not mean every single day is a gainer.
A deeper retracement into Tuesday's price range has to stay above the lows, but more preferably it should find buying support above a 50% retracement of the daily range. That would mean prices should preferably attract buyers before prints of (roughly) Nasdaq 1,938, S&P 500 1,101. Unless there are other technical signals which unfold, a certain amount of patience has to be afforded the markets.
Nasdaq support is 1,951-1,945, then 1,934-1,913.73, then 1,918.08-1,899.85, with a shelf of support at 1,918-1,914.
S&P 500 support is a small shelf at 1,109.04-1,106.10, then substantial support at 1,100.72-1,090.74.
During retracements, truly bullish markets often only approach support zones without printing inside them because buyers are so aggressive that they are satisfied with buying at any price cheaper than the previous print. Cherney is chief market analyst for Standard & Poor's