By Paul Cherney In Thursday's session, the VIX (market volatility index) printed above 50 and ended the session below 50. I looked back over all the times this has occurred since 1986. There were 22 occasions when this has happened; historically, the following trade day (Friday) has seen gains posted 13 out of 22 times (59% of the time). But, the S&P 500 finished Thursday's session with gains. I looked at just those situations when the day of a VIX print above 50 and a close below 50 ended with gains in the S&P 500, and there were 11. Seven of those 11 (64%) saw a loss the next trade day (Friday); the average performance was a loss of 0.84%.
I think it is important to point out that the last time the VIX was above 50.00 intraday and then closed the session below 50.00 was on July 24, the beginning of the reversal from down to up which was the start of a four-week rally which saw nice gains in the major equity indexes.
Thursday's session was short-covering combined with momentum buying and bargain hunting. Most market reversals start with short-covering. The past couple of years have seen only limited success in garnering follow-through higher but as I have been writing in this space for more than a few days, the unique situation of being in an October after a September quarter with losses of greater than 10% puts the odds in favor of weakness in the beginning of October and then strength in the second half.
On Friday, before the open, General Electric (GE) will report quarterly earnings. Disappointing numbers have already been discounted (to a certain extent) in the stock's price, but this report will still have an impact on the markets. If the report is terrible but the S&P 500 does not close below 779 or the Nasdaq does not close below 1133, then I think odds increase for a more positive trend in prices.
October has a reputation for being a bear killer (meaning some big bear markets have ended in October), prices can push lower in the beginning of the month and then prices can rebound in the second half of the month.
Support: The S&P 500 has immediate support 793-779. There is a pocket of support 785-775. The next layer of support (from Daily charts dating from April of 1997) is 771-733 there is a concentration of price action in the 763-747 area.
The Nasdaq has immediate support 1153-1139.44 and 1144-1108 which makes the 1144-1139 area a focus. The next layer of support is 1082-1017.
Resistance: Immediate intraday resistance for the S&P 500 is 801-811.62. Resistance is stacked and very thick 817-830.
Immediate resistances for the Nasdaq are 1164-1184.56, with a focus at 1173-1179. This is substantial resistance with a stacked layer running up to 1202. Cherney is chief market analyst for Standard & Poor's