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By Paul Cherney From Cherney Market Analysis
NYSE breadth measures have issued oversold signals. These signals usually mean a few days of choppy trading with potential for some minor gains.
Choppy is the key word here. I do not think that there can be an extended run higher at this time but when I see readings like this, I do expect some minor upside to unfold (in choppy trade meaning one day can be up and the next day can be down, but there should be some net positive price action). With this signal in place, a test of 1224-1226 on the S&P 500 seems likely sometime over the next 4 or 5 trade days. If there is sufficient improvement in momentum measures, a test of 1231-2142 could unfold, but I no longer think that a close above 1231.27 in the S&P 500 would mean the end of basing. At this time I do not have configurations that would improve the chances for a good extension, more hesitation and caution in the beginning of October looks likely.
Even though it was breadth measures on the NYSE that issued oversold signals, the Nasdaq has potential for a test of the 2139-2163 area.
At this time I do not think that minor choppy advance can produce a Nasdaq close above 2162.14.
The short-term prospects for the markets are for some choppy trading, but once the month of September has concluded, the extreme readings in the University of Michigan sentiment index do offer some historical precedent for price action in the October through March window.
The Nasdaq has intraday resistance 2124.28-2132.60, Meaningful resistance is 2155-2162.14, resistance is thick 2158-2163, resistance is formidable 2177-2186.83.
S&P 500 intraday resistance is 1218.99-1225.61 then 1232.15-1236.49. The index has formidable resistance at 1229-1242.62.
Nasdaq immediate intraday support is 2114-2099.
Nasdaq major support is 2106-2039, and it is a critical support, that, if broken would open the downside for sub 2000 prints. I expect this level (2106-2039) to hold. Inside the 2106-2039 support layer, there is a focus of support 2106-2072 and this is still a likely spot for the markets to make a stand (if tested again). Inside this zone is a focus of measures in the 2087-2072 area and prints inside this area should compel short covering which can easily lead to a more protracted rise.
The S&P 500 has well-defined support 1206-1165 with a focus of support 1206-1183. This is a very strong layer of support and is expected to hold if tested again.