The media have attributed the inspiration for the afternoon sell-off on Tuesday to comments from Atlanta Fed President Guynn who said (repeating from a speech he delivered a month ago), that we have not reached a neutral policy stance yet. This might have been the first contradiction by a Fed member of Fisher's "8th inning" comments last week and this helped to change some investors' perceptions that the end of this round of tightening is at hand.
Tuesday's price action suggests that the markets might be "on hold" or drift sideways and a little lower until Fed Chairman Greenspan, in a scheduled appearance on Capitol Hill Thursday, has the opportunity to make comments that either confuse or clarify market perceptions about the Fed's intentions.
The S&P 500 remains stronger than the Nasdaq in the short-term and if the Nasdaq spends more than just a minute or 2 below the 2,066.36 level, another small intraday leg lower would be expected and a test of the 2,057-2,050 area.
support for the Nasdaq is 2,076.80-2,066.36. If the index starts to print below 2,066.36 that would increase the chances for a test of the 2,057-2,050 area.
The S&P 500 has numerous layers of support and it is usually difficult for markets to just slice through layers of support like this.
Immediate intraday support for the S&P 500 is 1,197.39-1,191.03; there is a layer of support that overlaps at 1,194-1,185.19, which makes the 1,194-1,191.03 area a focus of intraday support. On Monday, the intraday low for the S&P 500 was 1,192.75, prices were unable to print below the 1,191.03 level.
There would be some concern for a short-term shakeout if the S&P 500 spent more than 4 minutes below the 1,185.19 level, but supports are stair-stepped and stacked, offering numerous price levels to entice buying participation. The support of 1,194-1,185.19 is overlapped at 1,187-1,180.87, which creates another 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.
resistance for the Nasdaq is 2,074-2,078.94, then 2,083-2,097.80; this is the most immediate intraday resistance established over the last few trading days, but immediate resistance actually runs to 2,103.45. The next layer above that starts at 2,106.19 and runs to 2,116.75.
Immediate intraday resistance for the S&P 500 is thick at 1,205-1,217 with a focus at 1,211.23-1,215.58. The next layer is 1,221-1,229.11.
The price and volume action of the past few weeks usually mean that there is an underlying willingness to buy. The first retracement (this is it) 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 when and if 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 2,045, but I have to add that markets are not obliged to comply with my expectations for performance, I also like to employ observations of chart support and in my view of the Nasdaq, the key chart support is 2,042-2,027. So, even if there is a close under Nasdaq 2,045, the key chart support for the Nasdaq is 2,042-2,027 and this is the area that is most likely to attract buyers (if prices were to move that low).
I still expect that sometime over the next 17 trade days, there should be an S&P 500 close at or above the 1,215.00 level and a Nasdaq close at or above 2,119. Every day the markets deliver new information that either confirms or contradicts assumptions in place: so far, I have not seen enough evidence to cause me to second guess this assumption, but if the Nasdaq posted 2 closes below 2,027, this would not be consistent with expectations that there is strong buying demand, strong enough to lift prices to new swing highs.