By Paul Cherney The risk of additional downside has not been extinguished.
Near the close of trading on Monday, short-term measures of NYSE breadth hit levels which often precede a small lift in prices, but it might be only intraday with no real followthrough higher.
Intraday indicators based on 60-minute price bars for both the Nasdaq and the S&P 500 have not reached oversold readings. These indicators do not have to register oversold for the markets to rebound, but it is a confidence builder to me when I see oversolds registered. That has not occurred yet.
The inability of the markets to find buyers to propel prices higher compelled me to review end-of-day indicator configurations of the past 10 months to look for differences. I noticed that the last few times short-term price oscillators were in similar configurations (which usually signalled a rebound in prices), that the S&P 500 was at or near its 50-day
moving average of price. That is not the case now. The 50-day moving average of the S&P 500 is near 1,096. Unless there are other technical conditions which unfold, a move in that direction cannot be ruled out.
Longer-term measures of price momentum are starting to weaken, but remain at levels which usually see a dip in prices that attract buyers. However, another extended up leg does not appear likely and the chances for a trading range market are increasing. A trading range market for which we have not yet defined the "buy line" (the lows that attract buyers to keep prices in a range).
Nasdaq supports are 2,058-2,041
supports and 2,034-1,996.62
The Nasdaq has a small ledge of
resistance at 2,073-2,087.04, then well-defined resistance at 2,105-2,128.47.
S&P 500 support is 1,124-1,113.69, then 1,110-1,105.
Intraday resistance levels for the S&P 500 do not become well-defined until 1,144-1,149.14.
There are multiple price points of interest directly below current Nasdaq prices and downside risk looks limited.
In addition to the chart support mentioned above, there are price gaps in the 60-minute charts for both the Nasdaq and the S&P 500. They were created by the vault higher at the opening on January 5, 2004.
Often times, the first move into a price gap can generate a short-term counter move.
The price gap for the Nasdaq (60-minute chart) is 2,020.78 to 2,006.68.
The price gap for the S&P 500 (60-minute chart) is 1,110.62 to 1,108.68.
There is no "Law of the Marketplace" that says price gaps have to get filled but these prices are very near the downside price risk levels generated by my observations of downside risk from last week, so I am keeping them in the comment until I see something more definitive in terms of higher prices for the indexes. Those potential downside targets were Nasdaq 2,025 and S&P 500 1,116.65.
The VXO is above its 10-day exponential moving average. It is not a healthy condition for prices when the VXO is above its 10-day exponential moving average and moving away from the 10 day, but the VXO is currently working lower.
Very near the close of trading on Monday, Feb. 2, the 10-day exponential moving average of the VXO was 16.21, one of the problems with the movement of the VXO on Monday was a move lower, which found no followthrough and reversed so the VXO finished well above its lowest levels of the day. Cherney is chief market analyst for Standard & Poor's