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A Thursday Bounce?

By Paul Cherney Wednesday's price action normally is a set-up for a drop and then a vanquishing of short-term sellers followed by a rebound from the lows of the session. To state the obvious, this is the week of the Triple Witch, when the monthly stock and index option expirations coincide with the quarterly expiration of futures contracts. There can be volatility as contracts wind to a close.

I have intermediate term indicators (based on end of day data) which are in positions which are usually followed by gains, but the VIX (volatility) index has to close below its 20 day exponential moving average, (roughly 26.09) to shift the odds to favor a 3 to 5 day "net positive" run. (Waiting for the VIX to close below the 20 day exponential means that you miss the first day of a potential lift.)

I include this reminder from Tuesday's end of day comment because it remains important: In Monday's session, the NYSE's TRIN (an index combining both advance/decline and up-volume/down-volume indicators) at the end of the session was 0.35. Closes under 0.40 are not that common. The recent record of price performance for the S&P 500 in the wake of excessively low (under 0.40) TRIN readings has not been great. For those who have access to historical charts, here are the dates of the last 5 times the NYSE TRIN has finished the day below 0.40: May 8, 2002; Apr. 16, 2002; Dec. 5, 2001; May 16, 2001; and Mar. 16, 2000 (which led into the March top).

Because this is the week of the Triple Witch, every movement of price is going to make dramatic price changes in leveraged instruments (futures and options) and there is a potential for the markets to open in one direction, make a move and then trip anxiety switches in the players caught on the wrong side of the move, which can create volatility as losing positions are abandoned (pushing prices further in the direction of the run) before intraday winners take profits, which can reverse the move. This still applies to Thursday's market.

The Nasdaq has immediate resistance at 1519-1538.36, then 1554-1595, with a focus of resistance at 1560-1570. The next thick resistance (above 1595) is 1620-1654.

The S&P 500 has immediate resistance at 1025.93-1039.09. There is a focus of resistance at 1032-1037.80. There is thick price traffic at 1039-1047. The next resistance is at 1065-1088.

Immediate Nasdaq support is/was 1526-1498. The next support is 1481-1445 and then all of the price range from Sept 21, 2001.

Immediate intraday support for the S&P 500 is 1024-1009, then 1003-981 and then the entire price range from Sept 21, 2001.

September 21, 2001 price ranges are:

S&P 500 intraday high 984.54, intraday low 944.75, close 965.80

Nasdaq intraday high 1454.04, intraday low 1387.06, close 1423.19 Cherney is chief market analyst for Standard & Poor's

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