By Paul Cherney
There still is a positive bias in place for the S&P 500 index, but the markets need a headline to push prices higher. The Nasdaq composite index improved a little on Tuesday, Feb. 8, but still remains neutral, meaning I have no clear evidence that the index will try to trend higher or lower.
So far, buying has been supportive of higher prices, but the buying has not represented a stampede of demand.
My assumption is: there is a positive bias in place until the markets deliver contrary information. I will be monitoring the CBOE volatility index, or VXO, as a warning that downside risk is increasing. A move higher in the VXO that forces it to close above its 10-day exponential moving average would start to raise concerns for lower equity prices. A close in the VXO above its 30-day exponential moving average would probably coincide with aggressive selling.
Very near the close of trading on Tuesday, the 10-day exponential moving average for the VXO was 11.87, the 30-day was 12.68. These averages are dropping and there will be new, lower thresholds to consider everyday, but until the VXO starts moving higher, or some other technical alarms are delivered by the markets, I assume that buyers are in the driver's seat.
Immediate resistance for the Nasdaq is a broad band at 2,066-2,116. There are two shelves of resistance within this band: 2,074-2,095.64 and 2,102-2,111.43.
S&P 500 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 for the Nasdaq are: intraday 2,075-2,068, then more substantial 2,060-2,049. S&P 500 support is 1,996-1,980, with a focus of support 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 11th trading day of the month (the 11th trading 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