By Paul Cherney
I would describe the current markets as "searching for buyers" -- part of the bottoming process -- but there simply has not been enough technical evidence of aggressive buying to tilt the scales to favor of a sustained trend higher.
There is a negative bias in place as long as the CBOE volatility index, or VXO, remains above 13.91, although any move lower in the VXO usually accompanies stronger equity prices.
The late session action on Thursday could be a set-up for a mini selling capitulation on Friday, but I do not think that I will have major oversold signals in the overnight systems run. A major oversold signal would increase the chances for a lift of more than just a trading day.
The Nasdaq is now at the top of immediate support (2,049.77-2,025.63) This support looks like a likely spot for the current decline to take a rest. I would need to see better technical evidence of earnest buying to guess that a good low had been established (no such evidence yet), but for now, the markets, on a short-term basis, appear ripe for an oversold rebound.
The S&P 500 closed Thursday's session right near the lower edge of immediate support: its former trading range of 1,194.78-1,175.61. Additional support for the S&P 500 is 1,169-1,160.52. It would not be healthy for bulls to see a close under 1,160, because in my view of the chart that would increase downside risk for a test of the next layer of support under 1,160.52 which is 1,142.05-1,090.19.
Immediate, well-defined support for the Nasdaq is 2,049.77-2,025.63, created right after the November elections. Next support is 1,981-1,900.
S&P 500 immediate resistance is 1,185-1,195.98, then 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, 2001: resistance is 1,215-1,226.27.
Nasdaq resistances are 2,066-2,093, with the next resistance at 2,100-2,116.75. Next resistances are 2,132-2,152, with a stacked shelf at 2,155-2,165.
The Nasdaq has a small shelf of resistance at 2,059 to 2,066 and if prices can print above the 2,066 level for more than 4 minutes without attracting sellers, then a positive day for the index would be likely.
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