By Paul Cherney
The technical case for equities has weakened and the the first day of the new year saw some profit-taking. Even though longer-term measures of momentum of price and volume remain at levels that usually mean retracements are shallow in depth and short in duration, these measures weakened considerably in Monday's session.
I was wrong about a gaining day or two to start the new year, but I still think that the short-term weakness should find a floor and another attempt at a lift in prices should follow.
The CBOE volatility index, or VXO, has made a move higher and there is a pattern that can sometimes (I sort of expect it) unfold; that is, a lift that moves to a multi-day high (something above 14.55, meaning into or above the 14.55-14.92 area of the VXO chart), that spike higher can represent a short-term satisfaction of sellers before the equity markets attempt another lift in prices. If this pattern unfolds it will be the internal measures during the lift in equity prices after the VXO has spiked above 14.55 and then started lower (the VXO back below 14.55) that might offer some insight into the ability of the markets to power higher.
For now, Tuesday and/or Wednesday, I am waiting to see a spike in the VXO above 14.55 and then a move back down below 14.55. BUT, If the VXO does not spike, and the VXO were to move back below 13.06, then the buyers would probably be back n command for equities.
This early in the year, I still think the downside is limited and there should be another lift in prices. Intermediate term indicators that measure price and volume have declined, but technically still remain at levels where the first decline in prices is still viewed as a buying opportunity (how far that bounce moves is the real question).
Immediate intraday support for the S&P 500 is 1,195-1,185, which should hold on a first test and probably provide a platform for another lift into the middle of January. S&P 500 support is stacked at 1,184-1,180.40.
The Nasdaq has immediate intraday support at 2,150-2,132 area. The supports for the Nasdaq are stacked: 2,143-2,132, is a focus of support, then 2,130-2,122, and 2,118-2,097.86, with thick support 2,113-2,105.
Monday's session for the S&P 500 established intraday resistance for the S&P 500 at 1,205-1,209.53. There is more formidable resistance from July, 2001. The older the resistance, the less precise you can be, but here is the read from the 60-minute charts from July and August of 2001: resistance is 1,215-1,226.27.
Nasdaq immediate intraday resistance established on Monday is 2,155-2,165. This is within the broader resistance based on 60-minute charts from 2001 (old resistances are not as precise as recent chart action) is 2,153-2,181.05, the index has spent some time above the 2,181 level on an intraday print basis, but has not been able to close above this level. In Monday's session the Nasdaq printed a high of 2,191.60 before the sellers became more aggressive than the buyers. This has set a small shelf of resistance at 2,177-2,191. The next layer of resistance for the Nasdaq is 2,202-2,264.48 and there is stacked/overlapped resistance at 2,226-2,328.05 which creates a focus of resistance (strong resistance) at Nasdaq 2,226-2,264.48.
Anytime resistance is exceeded it must be treated as support until broken. Anytime supports are broken they must be treated as resistance until exceeded.
Cherney is chief market analyst for Standard & Poor's