I think Tuesday's selling was aggressive, and this is a setup for Wednesday. If there is weakness at the open on Wednesday, a drop in prices could represent a short-term capitulation by sellers that might generate a good bounce off the intraday low. But at this time, there simply is not enough evidence to suggest that the selling (on a daily basis) is over.
I would view a lower open on Wednesday as having the potential for a rebound with some good potential for a lift of anywhere from 0.75% to 2% from the intraday low. But the overall daily view for the next few trade days would still be negative. (I would expect more selling, but a decline in oil or a rebound in the dollar would create an intraday atmosphere that would promote short-covering.)
Also, if there is opening weakness on Wednesday (I expect it), a move in the CBOE volatility index, or VXO, above the 13.44 level, or better, the 13.60 level and then a retracement back below either one of these VXO levels would probably coincide with intraday short-covering.
I think the chances are good that a short-term trend lower has started and even though there might be an attempt to rebound that could produce closing gains, I think the damage done is probably going to take more than just a one-day drop to mend.
The Nasdaq composite index has immediate
resistance at 2,036-2,047.
The Nasdaq has had a close under 2,039.72 and this opens the immediate downside risk for a test of the 2,018-2,008 area. At those prices though, short-term, on a first-time test basis, short-coverers will probably book profits (buy to cover which could stabilize prices and might attract other short-coverers). The Nasdaq is inside a layer of
support at 2,039-2,008. Inside this shelf of support there is a focus of support at 2,036-2,024. If there is a close under 2,008, that would be another step in a downtrend and would increase concerns for a test of the next layer of support: 1,980-1,900. The support in this zone starts to thicken at 1,971-1,947.
For the S&P 500 index, immediate resistance is two layers: 1,185.63-1,190, and then stacked at 1,191.54-1,202.48.
The S&P 500 has closed under a critical layer of support at 1,190-1,185.63. I think the chances are high for some small, stairstep movements that have a negative bias as the markets attempt to regain their feet. On the daily charts, there is S&P 500 support at 1,184-1,160. Inside this support are shelves. The biggest support looks like 1,178-1,163; the next support is 1,142-1,090. Cherneu is chief market analyst for Standard & Poor's