If the markets had moved higher on higher volume than Tuesday's, I would have considered the price action to be bullish. "Constructive" is not bad and it does lend itself to the idea that the markets are trying to form a bottom here.
Wednesday's price action does increase the importance of Monday's lows. If those lows are undercut, follow-through lower seems inevitable. The intraday lows from Monday were Nasdaq 1,829.06, S&P 500 1,078.78.
For now, I consider downside to be limited to the recent lows.
The intermediate term
support for the S&P 500 is 1,106-1,076, with a layer of support at 1,085-1,076. Supports are stacked due to the nature of the rise during the fourth quarter of 2003. That rise established thick and well-defined price support at 1,074-1,058.
Very near the end of trading on Wednesday, the CBOE volatility index, or VXO, was 15.88. The 10-day exponential moving average of the VXO was 15.89, very close and not really of predictive value.
Support for the Nasdaq is 1,860-1,829.06. The next focus of support is 1,815-1,792.
resistance for the S&P 500 still is 1,092-1,101, with a focus at 1,094.85-1,099.69, then 1,103-1,109.30, 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37. Well-defined intraday resistance is 1,123-1,130.33, with a focus at 1,124.60-1,127.02.
Immediate intraday resistance for the Nasdaq is 1,865-1,892.
There is a gap on the Nasdaq chart that was created by the gap lower opening on Friday, July 23, 2004 (it was in reaction to Microsoft's (MSFT
) earnings report Thursday after the close). The gap runs 1,874.46-1,885.08. The first test of a gap like this can attract some sellers.
The Nasdaq has a thick layer of resistance at 1,908-1,933.
These markets might just trade sideways, limited by Nasdaq 1829 on the low end and 1933 on the high end, S&P 500 limited by 1078 on the low end 1130 on the high end. Assume same unless other technical signals are delivered or prices break through the levels supposedly defining the sideways market.
Any time resistances are exceeded they must be treated as supports until proven otherwise. Any time supports are undercut they must be treated as resistance until proven otherwise. Cherney is chief market analyst for Standard & Poor's