By Paul Cherney
The VIX crossed below its 10-day exponential moving average in Wednesday's (Sept. 25) market. More often than not, this is a positive for price action, but I want to remind readers that it is not the holy grail of technical indicators.
Back in late July (July 26) when the VIX crossed underneath its 10-day exponential moving average, it had also just posted prints above 50.00 (a bullish condition once the VIX moves back below 50.00) and there had been record volume at the NYSE indicating that sellers had sold and it was the buyers' turn. Back on July 23, the close of the S&P 500 had reached a multiyear discount to its 200-day moving average.
It was a time of excessively oversold readings: the sentiment as measured by Investor's Intelligence had seen the fear push the percentage of bearish newsletter writers to a level higher than the bulls (bearish 40.2%, bullish 37.1%).
These were all excessive readings which screamed oversold and the rebound in prices was textbook. The technical and sentiment conditions of the current market are not as lopsidedly bullish as they were back in July when the VIX crossed under its moving average.
Until proven otherwise, I have to assume that price action as measured by the S&P 500 has a positive bias. But price action could easily be choppy and the historical performance of the S&P 500 in the wake of a VIX move underneath its 10-day exponential moving average has historical odds of 13 in 16 (81%) that in the first 10 trade days after the signal, the index will experience a close lower than the close on the day of the cross. For this market, it would mean a close under 839.66.
Historically, by the tenth trade day after a cross down through the 10-day exponential moving average of the VIX, (when that moving average is above 38.00), the S&P 500 has been higher 12 out of 16 times. The average of all the gains and losses as of the close of trading on the tenth trade day after a VIX crossing is a gain of 2.26%.
We are approaching the end of the quarter and most money managers earn fees based on assets under management, marked to the market as of the close of trading on the final day of the quarter (which is Monday, Sept. 30). So, unless prices really start to head lower, some of these money managers might be buyers to help boost the overall value of their portfolios and thus, their assets under management.
Immediate support for the S&P 500 is 849-843, then 830-818, support is stacked 818-796.73 (this is inside the 844-775 price range created on July 24th).
Immediate support for the NASDAQ is a thin shelf 1215-1206 then stacked at 1203-1184.
Immediate intraday resistance for the S&P 500 is 878-893.
Immediate resistances for the NASDAQ are 1216-1243, and 1232-1251 which makes the 1232-1243 area a focus of resistance.
Cherney is chief market analyst at Standard & Poor's