By Paul Cherney From Cherney Market Analysis
Deterioration in volume and breadth measures continued on Friday, this has increased the likelihood for more profit-taking.
Based on Thursday's closing data, one of the volume measures I use for the Nasdaq has made a cross to negativity. The first cross is usually a warning signal, typically (not all the time, but under current conditions, this is what I would expect) the first cross into negativity can lead to a day or two of minor weakness (Friday and intraday or all day Monday), but then another lift can unfold (small) and that can be the bigger failure.
The Nasdaq has had a close below the 2184 level and intraday on Friday the index tested next support at 2175-2165.44. Another move to test this area would probably produce short-term oversold conditions and a rebound, but right now, with the technical measures in place (weak and weakening), I do not think that the rebound can attract significant followthrough.
I am concerned that the recent signs of weakness can lead to additional selling. If the Nasdaq posts a close under 2165.44, those concerns would increase (even though a close below this level might spark a rebound, upside would probably be weak.) The Nasdaq has a focus of support 2167-2165.44. The first test of this area should produce a bounce sponsored by short-covering. Nasdaq 2167-2165.44 was established as a floor for prices July 22 through July 27. It is an important layer of support because these prices are the place on the chart where buyers have consistently bought the market. If there is a Nasdaq close below this area, that would suggest to me that a shift in sentiment has occurred (because if prices closed below 2165.44, it would mean that people are no longer willing to take a long-sided chance at those levels.)
For the S&P 500, I would become concerned about a shift in sentiment if the index posted a close below 1219.80, but what can happen is that money can start to seek refuge in the larger caps, and that can make downside, and trading in general, a trendless succession of mostly sideways prices.
Other technical conditions might establish themselves that would change this view, but right now, it looks to me like a little bit lower for a test of Nasdaq 2167-2165, then a bounce (this could happen intraday Monday), the bounce could linger sideways for a few trade days, but in my view of the markets, significant upside looks doubtful and profit-taking appears more and more likely.
Immediate Intraday Resistances:
Nasdaq immediate resistance is a shelf of resistance 2189-2207.79, resistance is well-defined (strong) 2201.91-2207.79, then 2211-2249 with a focus 2211-2233.33 resistance gets thick 2225-2233.
S&P 500 intraday resistance is 1229-1239.76, overlapped at 1238-1241.73 overlapped at 1240.90-1245.81, all of these levels create a focus of resistance 1238-1241.73 (intraday resistance). The next focus of resistance above 1245 is 1249.23-1267. It is still possible for a short-covering rally to push prices into this area, although I doubt it as I watch the breadth and volume measures weaken.
Immediate Intraday Supports:
Nasdaq supports are stacked, and it is usually difficult for prices to drop through stacked support unless there is a headline of undeniably bearish (or sentimental) impact. Next supports are 2175-2165.44, overlapped at 2167-2144.78. 2167-2165.44 is a focus of support.
S&P 500 has immediate intraday support at 1231.79-1223.03. There is a thin shelf at 1219-1215; the next meaningful support is 1206-1183.