By Paul Cherney From Cherney Market Analysis
I don't have measures that bolster confidence for a trend higher. But my price-only momentum measures for the S&P 500 are right at an inflection point, meaning, if there is a move higher, and a close above the key resistance at 1242.62, additional gains are more likely than a decline.
The S&P 500 is stronger than the NASDAQ -- part of this is the performance in the oil related shares. The bull market for oil is a fundamental story of global demand and longer-term investors must be focusing on that secular global reality rather than the price of energy futures because again, today, crude futures finished lower but oil related shares pushed higher again.
The S&P 500 and the NASDAQ are at key levels of resistance. Short-term momentum measures remain positive, these are trend following measures and the markets can turn lower before these measures do, but both the NASDAQ and the S&P 500 at at key levels of resistance.
The "key" levels of resistance I am referring to are NASDAQ 2177-2185.91 and S&P 500 1238-1242.62. I refer to them as "key levels" because like a key in a lock, movement past these levels on a closing basis can unlock the upside and force a buying wave. These are my interpretations of the chart.
One of the most bullish things that can happen is a gap above the key resistance levels and a close above those levels. An event like this can ignite buying that creates a trend that no one believes. If the NASDAQ produces a close above 2185.91, if the S&P 500 produces a close above 1242.62, another extension higher would be expected.
At this time, even if there is a failure at the key resistance levels, downside appears limited.
A break above the key resistance levels would increase the pressure to buy and there should be a short (a few trade days) break to the upside. Then there is a potential for the Fed to dampen spirits.
The Greenspan Fed has been very transparent in terms of intentions. It is this week's comments from Moskow and Yellen that make it apparent to me that the Fed has no intentions of pausing at the Sept. 20 meeting. Every time the FOMC meets there are always qualifying observations that it's not what the Fed does (in terms of the measured pace increase in the Fed Funds target) but the wording of the statement that accompanies the decision. On Sept. 20, this will truly be the case.
The Fed will probably choose its words very carefully, recognizing that it has to be vigilant for indications of the economic impact of Katrina, but it will probably not offer any clear cut declaration that the Sept. 20 rate hike will be the last until it can assess the impact of Katrina. That event (if it happens as described) could set-off a few days of selling.
The NASDAQ has resistance 2165-2185.91, resistance gets thick 2177.85-2185.91. Resistances are stacked, the next layer of chart significance is 2201-2249. Resistance thickens 2211-2233.
S&P 500 resistance is formidable at 1229-1239.76. A combination of several intraday plateaus creates a focus of resistance at 1238-1242.62, but resistance runs all the way 1245.81. The next focus of resistance above 1245 is 1249.23-1267.
NASDAQ intraday support is a thick shelf 2163-2158.61, next intraday support is a gap at 2147.31-2141 (intraday charts).
NASDAQ support is 2158-2140 and 2138.46-2130. stacked at 2128-1212. Next meaningful support for the NASDAQ is 2106-2039 with a focus of support 2106-2076 (very strong and should hold). Has not been tested.
The S&P 500 has support 1228.96-1218, overlapped at 1219-1215. Next support 1206-1165 with a focus of support 1206-1183. This is a very strong layer of support and if it were tested, I would still expect it to hold.