By Paul Cherney
Bear markets ignore good news and bull markets ignore bad news. In Friday's session, a large drop in durable goods orders for September was simply ignored by the markets.
The volume on the up days is not as big as the volume on the down days, which I think lends credence to the idea that we could be seeing lower chances of huge gains over the short-term. Some sort of consolidation could be ripening to unfold, but right now, I have three different historical studies which are all targeting the potential for price closes for the S&P 500 inside the 909-928 area of immediate resistance. So I do not think that the upside is over until we see additional closing gains. Potential targets include 911.64, 918.17 and 925.02.
I have not seen technical evidence to suggest that the current lift is over, and my attitude is: If the current models work, don't fix them.
The historical study outlined in Thursday's column suggests 8 in 10 odds for higher prices over the next few trade days and here are its salient points again:
• The historical odds are 26 in 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). Average closing gains in the first 10 days after the 10-day moving average of NYSE advancers minus decliners hits 400 is about 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 6th trade day, which for the current market would equate to the close on Friday, Nov. 1.
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, and 850-840. A move below 866 is not expected.
Immediate Nasdaq support is 1318-1302, with a focus at 1316-1308. Next support is 1287-1267, with a focus at 1279-1267, 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 is 909-928.
The Nasdaq has thick resistance at 1299-1347. The Nasdaq has a layer of resistance inside this band of resistance at 1332-1347. The next higher resistance is 1360-1427, with a brick wall at 1374-1399.
Cherney is chief market analyst for Standard & Poor's