By Paul Cherney
This is option expiration week and right now there seems to be a balance between buyers and sellers. In looking at February expirations from 1986 through 2003, using S&P 500 price data, on average, the 500 is more likely to see only small closing changes for Wednesdays, Thursdays, and Fridays of the February expirations (there are always exceptions, but the average volatility is the smallest for these three days of the expiration week). If the seasonal patterns in place since 1986 repeat, we can expect some weakness next week but then prices have tended to trend higher.
S&P 500 end of day momentum measures have weakened to neutral (formerly had a slightly positive bias).
Nasdaq end of day momentum measures are neutral.
Nasdaq chart resistances are: 2,077-2,102, with thick resistance at 2,077-2,087. Next resistance above 2,102 is 2,108-2,153.83.
Chart resistance for the S&P 500 is 1,151-1,176.97, with a layer of well-defined resistance at 1,151.44-1,158.89.
Historical studies suggest that prices at the end of the year will probably be higher than they are now, but here's the short-term view:
Supports are stacked for both the Nasdaq and the S&P 500, which usually makes it pretty hard for prices to drop dramatically without a painful headline.
Immediate Nasdaq support is 2,075-2,060. The next layer of Nasdaq support is a shelf at 2,050-2,042.75, then 2,029-2,016. The index briefly printed inside the 2,050-2,042.75 zone on Friday, Feb. 13, and buyers moved in and prevented prices from moving lower. The low print on Friday was 2,049.76 and this print attracted buyers, so this validates support.
Immediate support for the S&P 500 is 1,148-1,136.66, with a focus at 1,147-1,141. If the index traveled to under 1,136.66 for more than four minutes intraday, risk would open for a test of 1,129-1,124.
Very near the close of trading on Wednesday, the 10-day exponential moving average of the CBOE volatility index, or VXO, which measures implied volatility in OEX options contracts, was 15.89. If the VXO moves back above its 10-day exponential moving average, that would increase concerns about the potential for downside.
Expectations for a trading range are based on chart observations and the fact that the fourth quarter was a 10%-plus gaining quarter for the S&P 500. Historically, the quarter which follows a 10% gaining quarter sees an average gain of only about 4.0% as of the end of the following quarter.
A 4% gain based on the S&P 500's fourth-quarter close of 1,111.92 would equate to 1,156.40.
Cherney is chief market analyst for Standard & Poor's