By Paul Cherney
Right now the markets have become pretty well balanced between buyers and sellers. There still is a slightly positive bias in place for the S&P 500, but short-term Nasdaq readings have weakened to neutral.
Friday is the quarterly expiration of futures and options formerly referred to as the Triple Witch. Generally there is a surge of volume in the first 20 to 30 minutes and prices make a move, but after the first hour of trading, unless there is a geopolitical headline, Triple Witch Fridays often go into a sideways trading pattern, perking up a little late in the afternoon. And without a headline on Friday, that is probably the course for prices.
The CBOE volatility index, or VXO, is currently not offering any insight, except perhaps that there is a balance between buyers and sellers as the VXO is very close to its 10-day exponential moving average, which was 18.42 very near Thursday's close.
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 -- and that the market should exhaust short-term buying demand. 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, Mar. 17, at 1,962-1,939.20. 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 at 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 at 1,119-1,113. The S&P 500's next layer of support is 1,110-1,091, with a focus at 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. Due to hedged positions and the potential for a headline out of Pakistan, there is the potential for a technical break above the 1,133.11 level. If that were to happen, buy-stops would probably be triggered in futures and the S&P 500 could zoom up to the 1,248-1,258 area.
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 time-table for this potential downside target. Prices never move in straight lines and a move to test or close down in the support 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