By Paul Cherney
The CBOE volatility index, or VXO, is now testing its 10-day exponential moving average.
Longer-term momentum measures for both the Nasdaq and the S&P 500 remain positive.
Downside appears limited because momentum measures have registered levels which usually mean residual positive momentum is in place. When this is the case, the first pullback in price, even a decline of two or three trading days, is usually viewed by the markets as a buying opportunity but near the close on Friday, the 10-day exponential moving average of the VXO close was 15.93 and as long as the VXO is above this level and moving higher, the chances for gains weaken.
Immediate intraday supports for the S&P 500 are a stacked staircase beginning at 11,24-1,119.90. Additional supports are 1,118.48-1,113.69, then 1,106-1,100; the broad support is 1,106-1,068 and 1,083-1,053, which makes a focus of support 1,083-1,068. Price support thickens with prints of 1,096 and lower. A drop to prints under 1,113.69 is possible on Monday.
Immediate intraday resistance for the S&P 500 is 1,125-1,128. The longer-term (and older) resistance for the S&P 500 is still 1,116-1,133, then 1,151-1,176.
Immediate support for the Nasdaq is 2,089-2,078 then 2,062-2,047. In reviewing 60-minute bar charts, there is a layer of well-defined (strong) support at 2,070-2,039.63, which makes the 2,070-2,063 area a focus of support and if the index manages to print in this area I would assume that buyers would move in. Additional supports are 2,037-2,027, then 2,022-2,010. Considerable support exists at 2,001-1,986, then 1,974-1,960.
The Nasdaq is at the upper edge of an old band of resistance on the daily charts which runs 2,026-2,105. The index managed to ignore the nonfarm payrolls number on Friday and print above 2,105, printing an intraday high of 2113.33 before profit-takers moved in. A one- or two-day retracement would be natural, Friday would represent day one.
Based on recent measures of price momentum and price combined with volume for both the Nasdaq and the S&P 500, I would expect any short-term pullback in price to be shallow, and another short-term move higher would be expected, but the prospects for a good leg higher have dimmed, increasing the chances that good earnings reports could be viewed as a "sell on the news" events, capping upside.
There is virtually no competition for an investment dollar. Downside should still be limited, but as the earnings reports for the fourth quarter are delivered, the upside for the markets might be limited, too, as the markets digest some of the gains of the past 15 months.
Cherney is chief market analyst for Standard & Poor's