By Paul Cherney From Cherney Market Analysis
Speculation that the Federal Reserve might be near the end of its tightening cycle sent stock prices higher Wednesday, with the buying ignited by comments on CNBC by Dallas Fed President Fisher. Historically, since 1972, price performances of the Nasdaq and the S&P 500 indexes in anticipation of a final rate hike in a series can see volatility (price movement tends to occur in both directions).
After a preliminary look at the data, I think the chances are good that sometime over the next 21 trading days, there should be an S&P 500 close at or above the 1,215 level, Nasdaq at or above 2,119. Technical measures might continue to improve, and that would improve the chances for even higher closes, but for right now I feel confident that more upside is likely, although prices do not have to make a straight-line ascent to those levels.
This remains the technical condition of the markets: Intermediate term measures of price and volume (especially Nasdaq) have already registered levels that suggest to me that the first retracement from current levels should attract buying interest for a rebound. I do not start to become concerned about being wrong about the willingness to buy short-term dips in price unless or until the Nasdaq posts a close that represents a loss of 2.5% from its highest close. For the current market, that would be equivalent to a Nasdaq close under 2,034.
Historically, when the Nasdaq is outperforming the S&P 500, both indexes benefit, and that is the case right now, but there is also a pattern that often takes place after the initial lift (which is where I think we could be right now), and that pattern is that relative strength can shift for a brief period of time (several trade days, even a week or two) to the S&P 500, that could be the case over the next few trade days. Relative strength does not necessarily mean that the S&P 500 will gain more on a percentage basis relative to the Nasdaq, relative strength can also mean that the S&P 500 does not decline as much as the Nasdaq (on a percentage change basis).
On Wednesday, higher prices ultimately inspired some selling and the indexes came off the best levels of the session so it is important that prices not undercut the following price levels or this could usher in a small wave of profit-taking.
Nasdaq 2,067.23 now looks like an important short term level for the market, a move below this level for more than four minutes would open downside risk for a test of the 2,057-2,050 area.
S&P 500 1,185.19 is important as well; a move below this level for more than four minutes would increase the chances for a drop to test 1,178-1,166.
resistance is 2,075-2,103.45, with a focus at 2,083-2,095.54. The next layer of resistance is 2,106.19-2,116.75.
support for the Nasdaq is now 2,076.80-2,067.23.
Immediate resistance for the S&P 500 is 1,198-1,229.11. The next focus of resistance is 1,205-1,215.
Immediate intraday support for the S&P 500 is now 1,197.39-1,191.03.
The S&P 500 has a shelf of good intraday support at 1,191.23-1,187.66.
The S&P 500 has numerous layers of support including 1,194-1,185.19. There would be some concern for a short-term shake-out if the S&P 500 spent more than four minutes below the 1,185.19 level. Supports are stair-stepped and stacked and it is usually difficult for prices to just slice through supports like these. Support is overlapped at 1,187-1,180.87 which creates a focus of support at 1,187-1,185.19. A move below 1,180.87 would not be healthy, and could ignite some fear-driven selling. The next layer of substantial support, though, is directly underneath 1,180.87 at 1,178.87-1,165.