By Paul Cherney
The session on Friday, Apr. 23, provided a sign of continued buying interest: neither the Nasdaq nor the S&P 500 undercut Thursday's small intraday shelves of support. Those shelves were, and are: 1,138.42-1,134.21 for the S&P 500; 2,035.39-2,027.51 for the Nasdaq.
For the last two weeks (this week and last week), Mondays have been days of small gains on light volume. This is true for both the Nasdaq and the S&P 500 (using NYSE total volume). The low volume Monday gains of the past two weeks have been followed by Tuesdays of closing losses in heavier volume. If there has really been a change in psychology, this coming Monday (Apr. 26) should see something different: either small losses on diminished volume, or closing gains with volume higher than whatever the total trading volume on Apr. 23 turns out to be.
Reminder: An update to the technical study I did last week that looked at the price action in the S&P 500 after a move in the ratio of decliners to advancers at the NYSE over 6.0 comes into play. Since the S&P 500 has had negative closes since the Apr. 13 signal date (the close on the day of the signal was 1,129.44 and Tuesday, Apr. 20, saw the S&P 500 close at 1,118.15), I eliminated all the previous signals which never posted a negative close and recalculated the average performances of the best closing gains. Once I eliminated those signal dates, the average of the best closing gains during the first 22 trading days after similar technical conditions in the past became a gain of 3.86%, which for this market equates to an S&P 500 close of 1,173.04 sometime on or before Thursday, May 13, 2004.
Remember, that's just an average performance price. The S&P 500 might or might not reach that level on or before May 13, but right now, price and volume measures are moving in the right direction to support the notion of higher prices yet to come. (The study was based on signal dates when the NYSE decliners divided by advancers was over 6.0 and the S&P 500 closed the session in the upper half of both its 50 and 100 day trading ranges.)
The CBOE volatility index, or VXO, is below its 10-day exponential moving average and I view that as a background positive for stock prices. Near the end of the trading session on Friday, Apr. 23, the VXO's 10-day exponential moving average was 15.46. Sometimes there is some negative stock price action when the VXO hits 2 standard deviations below its 20-day exponential moving average (The VXO is close to hitting its lower Bollinger Band.) That 2 standard deviations level was 13.80 for the VXO very close to the close on Friday, so if the VXO manages prints below that level, there might be some mechanical selling which could affect prices for a couple of days.
With the evidence at hand, I think stock prices will manage to move higher, but that does not mean every single day is a gainer.
Nasdaq resistance is a band at 2,037-2,079, inside this band there is thick resistance at 2,048-2,064.
The S&P 500 is inside a layer of resistance which is 1,135-1,149. The index has stacked resistance. The next layer of S&P 500 resistance is 1,149-1,176.97, with especially thick resistance at 1,149-1,158.98. The March, 2002, charts show a well-defined layer of resistance for the S&P 500 at 1,166.27-1,173.94.
The S&P 500 has immediate intraday shelf support (thin) at 1,138.42-1,134.21, then 1,125.72-1,116. If there is a retracement, it would be better for the bulls, a sign of buying demand, if prices were able to attract buyers in sufficient numbers to prevent prices from undercutting a layer of well-defined support which runs 1,124-1,120.82. The longer-term band of support is 1,125-1,102. There is thick support at 1,125-1,113. The intraday low on Wednesday, Apr. 21, was 1,116.03.
Immediate Nasdaq support is 2,019-1,960. There is a layer of especially well-defined support which starts at 1,985 and runs to the 1,960 area. The Nasdaq's intraday low on Wednesday was 1,973.25. Next support is 1,920-1,896.
Immediate intraday support for the Nasdaq is now 2,027-2,019; more substantial intraday support for the Nasdaq is 1,994-1,973 with a well defined shelf at 1,993-1,984.37.
Cherney is chief market analyst for Standard & Poor's