By Paul Cherney It would not be healthy for the VIX (market volatility index) to move back above its 10-day moving average for more than two consecutive days. The 10-day exponential moving average of the close finished Wednesday near 38.04.
In reviewing price performance in the first 10 trade days after a VIX crosses under its 10-day exponential moving average, there is some short-term downside risk. In the 15 occurrences since 1986, only three of those crosses lower saw the S&P 500 just take off like a rocket without closing lower than it was on the day the VIX crossed below its 10-day exponential, so that means that in the first 10 trade days after the VIX crosses down through its 10 day exponential, the odds are about eight in 10 that there will be closes which undercut the close on the day of the cross (eight in 10 odds of an S&P 500 close under Tuesday's (Sept. 10) close.
The worst closing performances tend to happen in the first few trade days after the cross. By the 10th trade day after the cross, the S&P 500 has had closing gains 12 out of 15 times (80% of the time). Eight in 10 odds are the kinds of odds you want to take, not give. The biggest gain as of the 10th trade day after the cross has been +10.05%, the smallest gain has been +0.50%. When measuring prices from the close of the cross to the close of the 10th trade day out, there have been 3 series of data with losses: they were -0.40%, -1.59%, and -3.45%.
Thursday will be the second day of trading after the VIX makes its cross; odds are 10 in 15 (67% of the time) favoring a gain by the close.
If you look at closing prices inside the 10 trade days following the cross, the average down close for the S&P 500 was a loss of 2.4% (in this market that would equate to a close of 887.75, so that is the average downside risk). And on average, it occurred 3.7 trade days after the VIX's cross which for this market would be Friday or Monday.
The current market is a complex situation both technically and psychologically. I think in the short-run the downside risk appears limited versus the potential reward of higher prices sometime in the next 10 trade days.
Support: Immediate support for the S&P 500 is 910-900.50 then 890-875. Substantial support is 876-833, with a focus of support 868-854.
Immediate support for the Nasdaq is 1303-1294 then 1280-1265.
Resistance: Immediate intraday resistance for the S&P 500 is 909-928 focus 923-928.
Immediate resistance for the Nasdaq is 1319-1350.92 with a focus 1346-1350.92. Cherney is chief market analyst for Standard & Poor's