By Paul Cherney
The CBOE volatility index, or VXO, is slightly higher than its 10-day exponential moving average. The chances for a good move higher do not increase until the VXO can start moving lower, but so far, the move above the 10-day exponential has not caused any harm, although it might have limited the upside for the S&P 500.
Near the close of trading on Monday, Jan. 12, the 10-day exponential moving average of the VXO close was 15.99 and as long as the VXO is above this level and moving higher, the chances for big gains weaken.
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.
Picking tops in a market which has demonstrated the ability to trend higher -- the way these markets have -- is usually a waste of time. It is better to wait for longer-term measures to break down than it is to guess that every dip in price is the beginning of a dramatic move lower just because prices have moved so far up.
Immediate intraday supports for the S&P 500 are a stacked staircase beginning at 1,124-1,119.90. 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 2,101-2,084, 2,089-2,078, then 2,062-2,047.
The Nasdaq has managed to exceed the upper edge of an old band of resistance on the daily charts which runs 2,026-2,105. This is the second time in two days that the index has done this.
Good earnings reports could be viewed as a "sell on the news" event for some companies, 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.
This quarter is a quarter following a 10%+ gaining quarter for the S&P 500. Historically, odds are eight in 10 that the S&P 500 will be higher at the end of the March quarter; the average gain (closing basis) by the end of the quarter is 4.05% based on data since 1958. A 4.05% gain based on the close of the S&P 500 at the end of fourth quarter would put the index at 1,156.96.
Cherney is chief market analyst for Standard & Poor's