By Paul Cherney
The volume was not impressive on Monday. Without volume, there is no proof that money with a longer-term time horizon is being put to work and that leaves the markets vulnerable to short-term players. When short-term players and long-term investors are in agreement, markets trend. Right now, we do not have any evidence that investors are willing to commit cash in a meaningful manner.
The markets reacted positively to an intraday decline in the price of crude oil futures, and when crude oil futures made a big retracement right near the end of October, 2004, there was a good fourth quarter lift in the major indexes. So, if oil prices can continue to weaken, that would be a background positive for prices, but right now, the markets need to overcome immediate resistances on volume other than that generated by short-term traders.
The markets appear to be trying to base and neither bulls nor bears have been able to establish a meaningful trend over the last 8 trading days.
The Nasdaq has support 1,981-1,900, there is a focus of support in the 1,971-1,954.
Immediate support for the S&P 500 is 1,179-1,160.52. The S&P 500 has a concentration of support at 1,169-1,163. If the index were to have a close under 1,160.52, in my opinion, that would open downside risk for a test of the next layer of support at 1,147-1,120, with a focus of support at 1,142-1,131.
The Nasdaq has resistance 1,986-2,008.63, stacked and well defined at 2,006-2,017.66, making a focus of resistance 2,006-2,008.63. A close above 2008.63 should force a wave of buying at the open on the following trading day. Nasdaq prints 2,016 through 2,027 are thick with resistance and the first move into this area is likely to be repelled unless it is accompanied by a headline that virtually everyone recognizes as bullish.
This level was almost tested in Friday's session when the Nasdaq printed an intraday high of 2,014.73. Next resistances are 2,036-2059 and 2,047-2,069.42, which makes the 2,047-2,059 area a focus of resistance. Additional resistances are directly over the 2,069 level at 2,078-2,093.68 and 2,101-2,111.43.
The S&P 500 has immediate resistance at 1,178.82-1189.80; there is a particularly well-defined layer of resistance at 1,183.78-1,188.40 (generated ahead of the FOMC announcement on Tuesday, Mar. 22). Next resistances are 1,190-1,194.84, then 1,199-1,210; resistance gets thick at 1,204-1,210.54. There is broad resistance at 1,206-1,229.11, which has a focus of resistance at 1,213-1,219. Above 1,229, the next layer of resistance is 1,240-1,286 with a focus at 1,246-1,261.
The VXO probably has to move below 12.88 (chart read) to offer real encouragement to bulls. When the VXO moves lower, stock prices are usually moving higher. When the VXO moves higher, stock prices are usually moving lower.
Cherney is chief market analyst for Standard & Poor's