By Paul Cherney
The markets are still stuck in trading ranges. The trading ranges, based on end-of-day data, look like this:
• S&P 500: The top of the the range is now 1,163.23 (Friday's intraday high), the bottom is 1,122.38
• Nasdaq: The recently established trading range has a top of 2,094.92, with the bottom at 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.
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).
Immediate Nasdaq support is 2,045-2,032, then 2,024-2,012, overlapping 2,014-2,005. On Wednesday, Mar. 3, 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. Next resistance above 2,102 is 2,108-2,153.83. The Nasdaq did print above 2,064.40, but it could not generate follow-through (see notes below).
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. I have reviewed charts from March, 2002, and there is a well-defined layer of resistance for the S&P 500 at 1,166.27-1,173.94.
The CBOE volatility index, or VXO (VXO.X ), which 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 Friday, the 10-day exponential moving average of the VXO was 14.92. Usually, if the VXO moves above its 10-day exponential and puts distance between itself and the 10-day exponential, equity prices are suffering. Sometimes in a market like this, prices have a brief, shallow shakeout, but buyers come back in on the dip.
I do not know when the bigger trading range is going to be broken. On the morning of Mar. 5, the intraday advance in prices was mechanically related to short-covering, hedge unwinding and a big buy program that kicked in due to the severe drop in interest rates. What I'm explaining is that there were mechanical events driving prices and since we have not really seen any follow-through to the S&P 500's intraday break above the recent swing high (1,158.98), I think we're still in a trading range, even though the upper edge of the range might be a little higher than current prices.
Quite often, the first move above resistance draws short-term profit-taking which forces prices back into the previously established trading range for a test of buying support. I do not know whether today's intraday retracement back into the trading range satisfies that pattern; usually, you have a couple of closes above the resistance level before the short-term pressures to take profits buildand force prices lower for a retest.
Cherney is chief market analyst for Standard & Poor's