By Paul Cherney
As of the close of trading Wednesday, Oct. 23, the 10-day moving average of NYSE advancers minus decliners rose to 438. A close above 399 is a breakpoint I use. I went back to June, 1994, in the data and pulled every trade day that saw this measure close above 399 after a previous session of below 399. There were 33 times (including Wednesday's) that this has occurred since June, 1994.
Here are some bullet points which add substance to the observations that upside from here is going to be a struggle, but historically, the odds do favor a higher close for the S&P 500 within the next 9 trade days. I looked at the first 10 trade days after similar signals in the past.
• The historical odds are 26/32 (81%) that the S&P 500 will post a close which exceeds the close on the day of the signal (which for this market would mean the odds are 8 in 10 for an S&P 500 close above 896.14).
• In looking at just the highest closes in the first 10 trade days after similar signals in the past, the average "best close" in the first 10 days after a signal is a gain of 1.72%, which for this market would mean a close of 911.64. (these are just averages, but they offer guidance).
• In looking at the number of trade days after the signal, that the "Best close" occurred, the average was the sixth trade day. Which for the current market would equate to the close on Friday, Nov. 1, 2002.
I think the evidence is considerable that we are at a place (or technically, just a little higher from here, starting at 909 resistance) which is highly susceptible to distribution.
Immediate downside risk is limited. Historical odds favor a higher close, possibly in the area of immediate resistance, for the S&P 500 resistance is 909-928.
Support: The S&P 500 has multiple stairsteps of support: 890-873, 877.51-866.14, 866.64-856.28, 850-840. A move below 866 is not expected.
Immediate Nasdaq support is 1287-1267 with a focus 1279-1267. Additional layers of support are not expected to be tested over the next couple of trade days, but they are: 1256-1229 and 1244-1220, which makes the 1244-1229 area a focus of support.
Resistance: Immediate intraday resistance for the S&P 500 is 900.50-909.89. Next resistance 909-928.
The Nasdaq has thick resistance 1299-1347 with a focus 1307-1327. There is/was a particularly congested area of prices 1309-1316. The Nasdaq has another layer of resistance which is 1332-1347.
Cherney is chief market analyst for Standard & Poor's