By Paul Cherney
The depressed levels that were registered Friday, Apr. 30, usually mean that the bounce does not generate signficant follow-through (but, follow-through can last multiple days) and then prices retrace, which often can set up an ABC pattern in the daily charts. Right now, with the CBOE volatility index, or VXO, falling and the 60-minute measures somewhat improved, another day of gains appears more likely than not.
The VXO remains above its 10-day moving average, but it is closing the gap (the VXO is above its 10-day but is moving lower, toward it). Near the end of trading on Monday, the 10-day exponential moving average of the VXO was 16.26.
Sixty-minute indicators have improved to levels which are slightly tilted to favor short-term reward rather than risk. This could be a set-up for a short-term lift Tuesday morning, but after that opening, the markets usually just move sideways ahead of a Fed announcement.
Federal Reserve policymakers meet on Tuesday, May 4. There is a regular intraday price pattern which has played out more often than not (since the beginning of 2001) in the wake of the Fed's 2:15 pm announcement after its meeting. Prices for the S&P 500 spike in one direction at the announcement, then there is a reversal and lower prices follow, but ultimately, prices re-assume the direction of the initial spike in reaction to the announcement.
There was a notable exception to this pattern, which occurred in January, 2004. The Fed had a two-day meeting which ended on Jan. 28, and it was in this statement that the Fed removed the phrase "considerable period" and inserted language to the effect that it can remain "patient" on policy accomodation. After that Fed announcement, prices moved lower in their initial reaction and then basically moved lower for the rest of the session with only a small rebound from intraday lows during the last 20 minutes.
The Fed has more or less tipped its hand already that rates will have to rise "at some point," so it would probably take a statement in the May 4 announcement which narrows the expected time horizon of a tightening to force a "one-way" price reaction.
Nasdaq immediate resistance is 1,947-1,957.40. Additional Nasdaq resistance remains 1,966.66-1,975.57.
The S&P 500 has immediate resistance at 1,116-1,122.55.
S&P 500 additional resistance is actually a band at 1,116-1,129.25, with especially thick resistance at 1,126.28-1,129.25. Next S&P 500 resistance is 1,935-1,949.
The Nasdaq has good support at 1,930-1,896; inside this support price action is thick (strong support with prints of 1,920 and lower). Due to the nature of the rise in Nasdaq prices there are multiple layers of support near these levels: 1,911-1,878 and 1,905-1,885.
The S&P 500 has well-defined (strong) support at 1,100-1,087. Next layer of support is 1,074-1,053, with a focus at 1,069-1,059.
Cherney is chief market analyst for Standard & Poor's