By Paul Cherney
Positive bias is in place until proven otherwise. I am willing to stay positive on price action until I see signs of technical weakness. So, the expected short-term advance might be able to linger and prices might be able to work higher for something more than just a couple of more trading days, but if prices linger at current levels on Thursday and then manage to gain on Friday, unwinding of hedges on Monday could see a retracement in price.
Expecting flat trade Thursday, tight range trading.
The CBOE volatility index, or VXO, is back below its 10-day exponential moving average, which is a background positive. Very close to the end of the session on Wednesday, Mar. 17, the 10-day exponential moving average of the VXO was 18.44.
Reminder: In the overnight systems run for Monday, Mar. 15, I had intermediate term signals which keep the odds for the S&P 500 tilted to favor that significant follow-through higher is not the most likely course for prices. The odds also favor that the market should exhaust short-term buying demand and that it is either going to have to establish a lateral base, or, continue to have lower closes. But right now, there is a short-term positive bias in place.
The Nasdaq has immediate intraday support, established on Wednesday, at 1,974-1,956.52. If there is a price retracement, it would not be a short term positive if prices spent more than a couple of minutes below the 1,956 level. The Nasdaq is in an area of broad support, 2,001-1,783, established over the months of October, November, and December, 2003. The index has well-defined support at 1,994-1,925, then 1,907-1,878, and in viewing the 60-minute charts I noticed a layer of support 1,928-1,906, which has made the 1,928-1,925 area a focus of support.
The S&P 500 has immediate intraday support established on Wednesday at 1,123-1,118.12. It would probably be a short-term negative if the index spent more than 4 minutes below the 1,118.12 level without attracting buyers to lift prices. The S&P 500's next layer of support is 1,110-1,091, with a focus 1,097-1,091, then 1,082-1,053, with well organized support at 1,077-1,031.
Immediate resistance for the S&P 500 is 1,120.90-1,133.11, then 1,138-1,146.
The immediate resistance for the Nasdaq is 1,968-1,984.71, then 1,996-2,022.
On Thursday, March 11, 2004, the S&P 500 closed below the "line of death" at 1,120.90, and this has technically opened downside risk for a test of the next layer of organized support on the daily charts which is 1,077-1,031. There is no calendar or timetable for this potential downside target. Prices never move in straight lines and a move to test or close down in the support area 1,077-1,031 might not unfold, but until I see stronger technical evidence to sway my opinion, that is what I expect. However, if the index can close above 1,146, this expectation would have to be considered wrong.
Cherney is chief market analyst for Standard & Poor's