Locked in a Range

The market will have a hard time making any moves higher amid uncertainty in front of first quarter numbers and many institutions on the sidelines

By Mark Arbeter

The market has been unable to get out of neutral and has been stuck in an ever-tightening range for the last four months. The technical signals are mixed at best and S&P continues to believe further rangebound trading will be seen over intermediate-term.

The S&P 500 has oscillated between 1180 and 1080 since early December, while the Nasdaq has traded between 1700 and 2100. Shorter-term support for the "500" comes in at 1132, with resistance at 1174. Shorter-term support on the Nasdaq lies at 1807 with short-term resistance at 1946.

Both indexes have retraced a sufficient portion of the latest rally (38% to 50%) while bouncing off good chart support areas. While a short-term low may be in place, we would not get too excited unless the S&P 500 were to finally breakout above the 1180 area on heavy volume. If that were to occur, the "500" could see a fairly decent run into the 1200 to 1250 zone. However, there is another wall of resistance that runs from 1180 all the way up to 1313, so any strength is likely to be met by further supply. This will keep a lid on stocks for the intermediate-term.

Along with the tightening trading range, volume has contracted over the last couple of weeks to well-below average levels. While some of the falloff in volume is due to seasonality and the uncertainty in front of the first quarter numbers, it also appears that institutions have stepped back from the market. Without participation by the behemoths of the investment world, the market will have a hard time making any progress to the upside.

Volume breadth indicators are now mixed, with the NYSE up-down volume flipping back to the bullish side while the Nasdaq volume measures remain bearish. The institutions that are putting money to work continue to gravitate to the value area and are avoiding technology. There are some pockets of strength in the high-growth area, and that has been in the small-cap and mid-cap area. Leadership among the large-cap issues remains a problem and will continue to weigh on the major averages.

Sentiment is split with short-term indicators such as put/call ratios and some the futures polls neutral and the longer term Investors Intelligence poll bearish along with the volatile American Association of Individual Investors poll. Investors Intelligence is still tilted way too far to the bullish side with 51.6% bulls and only 29.7% bears. The AAII poll has 53.2% bulls and only 11.3% bears. These are not sentiment readings seen at the beginning of a major stock market advance.

This remains a market dominated by traders and until the institutions come back from the sidelines, more trendless action is in store.

Arbeter is chief technical analyst for Standard & Poor's

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