By Paul Cherney
These markets are pretty well balanced now. There was no real damage done to intermediate term measures of buying demand and selling pressure on Thursday, Feb. 3; my assessment is neutral with a positive bias for the S&P 500 and just plain neutral for the Nasdaq.
For Friday, Feb. 4, the reaction to the January employment report will set the tone for the next few trading days. The charts offer some help: I think if the S&P 500 index starts to trade above the 1,195.98 level, some follow-through higher would be expected. If it trades below Thursday's low of 1,185.63, follow-through lower would be likely.
For the Nasdaq composite index, a move above 2,079.58 might only attract some follow-through. The S&P 500 is near the top of its immediate resistance, but the Nasdaq has suffered more and remains well below its potential short-term breakout point of 2,116.
If reaction to the employment report is negative, a Nasdaq price move below 2,049.25 would probably force a test of 2,030-2008.
Concerns about downside would rise signficantly if the CBOE volatility index, or VXO, climbs back above its 10-day exponential moving average which is close to 12.51 right now. The VXO is currently under 12.00 at 11.78.
Immediate resistance levels are Nasdaq 2,066-2,116, with a focus at 2,074.70-2,094.
S&P 500 intraday resistance: 1,980-1,995.98. Next resistance is 1,205-1,226.27, with a shelf of resistance at 1,205-1,209.53 and another shelf of resistance at 1,215-1,226.
Immediate supports are: Nasdaq 2,060-2,049, S&P 500 1,192-1,182.
Historical Fact: In the past 47 years, strength in the first half of February is very common after a down January. Based on S&P 500 data since 1958, 76% of the time, the highest intra-month close for February has occurred on or before the eleventh trade day of the month (the eleventh trade day this year is Feb. 15). Februaries that follow down Januaries have finished the month lower 65% of the time, so monitoring the VXO is important, because usually, when the VXO is rising, stock prices are falling.
Cherney is chief market analyst for Standard & Poor's