By Paul Cherney
Momentum measures are neutral with a slightly positive bias but the trading ranges persist. There is not enough evidence to make a truly strong case for a higher or a lower market, but at this time, in looking at the S&P 500, unless Tuesday's low of 1,124.37 is undercut, I would expect the underlying tone to improve and prices to move higher.
If there were prints above 1,142.16 some follow-through higher would be expected. That follow-through might only be on the order of another 1% to 2% above the 1,142 level, but NYSE breadth measures have simply not deteriorated to the point that I would interpret as a negative for the market and until that happens or the S&P 500 undercuts 1124.37, I assume underlying strength can build.
The 10-day exponential moving average for the CBOE volatility index, or VXO, was 14.90 near the close on Tuesday. Stock prices often move lower when the VXO moves above its 10-day exponential moving average and puts distance between itself and the 10-day, so if the VXO were to move above the 14.90 level, this would be a signal that selling pressure might be strengthening. But right now, it's not there.
The Nasdaq recovered on Tuesday and managed to test and close within immediate resistance of 1,982-1,996. The next layer of important short-term resistance for the Nasdaq is 2,001-2,006.79.
S&P 500 resistance is 1,134.34-1,142.16, with a focus at 1,136-1,139.08.
S&P 500 support is 1,129-1,009.91, with a concentration of price action at 1,125-1,113. Next support: 1,102.77 to 1,078, with a focus at 1,097-1,085.
The Nasdaq tested and found buying support inside 1,977-1,963.48. The lowest print for the Nasdaq over the past 16 trading days has been 1,957.58; a close below this level would open downside risk for a test of the next layer of support at 1,934-1,913.73. Overlapping support is 1,918-1,899, so the 1,918-1,913 area is a focus of support.
I would expect some follow-through buying if the S&P 500 can close above 1,142.16, (its highest print of the last 10 trading days).
Cherney is chief market analyst for Standard & Poor's