By Paul Cherney
I followed up the Triple Witch Week observations mentioned in Friday's column by looking at the historic price performance In the S&P 500 and the Nasdaq to find out how often a down Triple Witch week (which is what we had last week) is followed by another down week. Since 1991, the S&P 500 has been lower in the week after a down Triple Witch week 11 out of 15 times (73%). The Nasdaq has followed with a lower week 11 out of 23 times or 48% of the time.
The historical performance of the S&P 500 in years when it has lost more than 5% from the end of March to the end of May is usually lower still in the second half of the month. The study I performed generated historical odds (on data since 1970) of 4 in 5 (80%) that the S&P 500 will finish the month of June below 1007.27.
The two items listed above offer objective historical observations of historic price patterns that create a barrier to expectations that the reversal on Monday (from down to up) can just launch the markets into a rocket-shot, but the markets appear to be at or near some sort of a bottom, whether it was Friday's close or a lower close sometime in the next couple days, it appears to me that there is limited downside.
I have weekly indicators based on the S&P 500 that are at oversold levels seen at or near major lows over the past 14 years, and for this reason I do not think that there is major and long-lasting downside risk. The last time these weekly indicators (which combine price change with volume measures) hit these levels were September, 2001, March, 2001, October, 1990 and December, 1987. Because this indicator is based on weekly data it will not pinpoint to the day the turn, but we are within 10 trade days of a low which should launch higher prices. In reviewing daily price action near these excessively oversold readings, I know that there can be some volatility and choppy up and down action.
If the VIX (volatility index) can drop under 29.38 intraday, it should coincide with a rebound in prices. Because of the nature of the psychology of the marketplace right now, I do not think that the first lift from lows can generate a "never lookback" trend higher for the markets. I still expect to see a jagged low and a retest of the price trading range of that low unless something else technically presents itself.
The Nasdaq has immediate resistance at 1449 to 1491, with a focus of 1480-1486. The next resistance is 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 994-1005.58, then 1010-1019, then 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 1065-1088.
Immediate Nasdaq support is all of the price range from Sept 21, 2001. The Nasdaq has additional support from 1400-1200. I do not think the index (even if it sold off horribly) could manage more than one close below 1387.
Immediate intraday support for the S&P 500 is the entire price range from Sept 21, 2001. I do not think the S&P 500 could have more than one close below 944.75.
The Sept. 21, 2001 price ranges have not been undercut. They 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