By Paul Cherney
The potential for headlines next week kept a cloud of caution over the markets, but "net net", I interpret the price action on Friday, June 25, as supportive of higher prices next week.
Caution might linger in the beginning of next week but the support established under current prices is so thick that I do not think it would break if tested. Quite often, when the markets choose a potential headline to fixate upon, headlines that have potentially bearish importance, all of the discounting has occurred already and the markets can actually rise even before the headlines arrive.
The Nasdaq has managed a close above 2,023.54 and this has potentially short-term bullish overtones. The recent trading range has been 2,023.54-1,963, or 60 points, so the potential upside target would be 2,083.
On Wednesday, June 23, the S&P 500 closed above the 1,142.18 level. This represents a bullish breakout of the recent trading range and should be treated as such unless proven otherwise. It is perfectly natural for a breakout to retrace and test the upper edge of the trading range of the breakout. The standard calculation for a potential price target is to take the trading range (1,142-1,122) and add it to the breakout point which would create a potential target of S&P 500 1,162.
Intraday rises that were turned back have established another set of important price levels for both the Nasdaq and the S&P 500. The price levels are Nasdaq 2,033.87 and S&P 500 1,146.34 and if these levels are exceeded, pressure will be on shorts to cover. Any rise that cannot produce a Nasdaq close above 2,033.87 and/or the S&P 500 close above 1,146.34 would increase the chances for some slow-motion sideways trading in the upper half of the recent trade ranges.
The 10-day exponential moving average of the CBOE volatility index, or VXO, was 14.66 near the close on Friday. 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 this level has taken on new importance because the VXO is above 14.66 and a lift in stock prices is probably going to have to force the VXO back below 14.62, if not, this would raise suspicions about the ability of the advance to sustain itself.
The Nasdaq's immediate resistance is 2,037-2,079; inside this resistance is a thick band at 2,048-2,064.
The Nasdaq has support at 2,023-2,015, stacked at 2,015-2,000, then 1,996-1,982.
S&P 500 resistance is 1,149-1,176.97, with especially thick resistance at 1,149-1,158.98. The March, 2002, chart shows a well-defined layer of resistance at 1,166.27-1,173.94.
The S&P 500 has support at 1,142-1,134, with a focus at 1,137-1,134. Next support is 1,129-1,113.
Downside should be limited and higher prices should unfold.
Cherney is chief market analyst for Standard & Poor's