By Paul Cherney
Wall Street is expecting Friday's employment report to show a gain of up to 125,000 February nonfarm payrolls, and most would prefer to see a number north of 150,000. A non-farms number of 175,000 or higher should be a positive for the market, to the point of causing a short-covering rally. The unemployment rate is expected to be unchanged at 5.6%.
The markets are stuck in trading ranges. The trading ranges, based on end-of-day data, look like this:
• S&P 500: The top of the most recently established range is 1,158.98, the bottom of the range is 1,122.38;
• The Nasdaq: The top of the recently established trading range is 2,094.92, the bottom is 1,991.05.
Due to the thick price traffic established in the Nasdaq during the October, November, and December time frame, it is not likely that the index can just plunge.
There is nothing definitive in the end of day measures; 60-minute measures have a slightly positive bias for both the Nasdaq and the S&P 500. A move above the S&P 500 1,158.98 level or a move above the Nasdaq 2,064.40 level will probably force a short-squeeze.
Nasdaq indicators based on end-of-day measures are neutral. The index was unable to close below 2,032 on Wednesday, which suggests that there are still people willing to buy, not sell, which is a background positive short-term. The 2,032 level probably represents a towel-toss for short-term bulls who might run out of patience if the employment report does not impress positively.
Well-defined support (strong) for the Nasdaq (intraday) is 2,045-2,032.
S&P 500 support is 1,150-1,141.80. A retest of the bottom edge of the trading range would become more likely if the index were to close below 1,134.43 (a recent swing low).
S&P 500 end of day momentum measures are in neutral.
Immediate Nasdaq support is 2,045-2,032, then 2,024-2,012, overlapping 2,014-2,005. On Wednesday, the Nasdaq printed a low of 2,020.29 and buyers re-entered the market. The bigger band of support established over the months of October, November and December, 2003, is 2,007-1,959; there is a focus of support at 2,001-1,996. Next support is 1,980-1,959. This looks like very strong support which should not break.
Immediate support for the S&P 500 is 1,150-1,141.80, overlapped at 1,147-1,138.62, which makes the 1,147-1,141.80 area a focus of support. That is where the intraday low for the S&P 500 was on Wednesday: 1,143.78. Next support is 1,129-1,124.
Nasdaq immediate chart resistance is 2,049-2,064.40, then 2,072-2,094.92. This resistance actually goes all the way to 2,102; there is a focus of resistance at 2,072-2,091. The next resistance above 2,102 is 2,108-2,153.83. If the Nasdaq can print above 2,064.40, a move up into the next layer of resistance (2,072-2,094.92) would be likely.
The S&P 500 has a band of resistance at 1,149-1,176.97, with a layer of resistance inside this zone at 1,149-1,158.98.
The CBOE volatility index, or VXO, measures implied volatility in OEX options contracts, is still below its 10-day exponential moving average, which I interpret as a background positive for prices. Very near the end of trading on Thursday, the 10-day exponential moving average of the VXO was 14.95. Usually, if the VXO moves above its 10-day exponential and puts distance between itself and the 10-day exponential, equity prices are suffering.
The current balance between buyers and sellers is very common ahead of the monthly employment reports. I think the markets have the capacity to move higher short-term, but I know that it will be the reaction to the employment report which dictates price action on Friday morning.
Cherney is chief market analyst for Standard & Poor's