Room for More Gains
By Paul Cherney
The late day surge in prices on Thursday, June 27, pushed the VIX (volatility index) to 30.02, representing a close under the 10-day exponential moving average of its closing level. This is a positive -- it is not a trend -- but it is a move in the right direction. Choppy price action is still likely, and I have other indicators which suggest that there is still some potential for prices to retest the price range from Wednesday (meaning Nasdaq prints of 1437-1375 and S&P 500 prints of 977-953 are possible), but considering the last four times this weekly indicator has registered these signals, some sort of trend higher should unfold (a movement higher in prices which lasts for more than one or two days).
The weekly indicator I have been referring to is based on a combination of S&P 500 price action with NYSE volume measures. Last week, it hit levels last seen in September, 2001, March, 2001, October, 1990, and December, 1987. The markets (as measured by the S&P 500) demonstrated price stability at previous similar readings and I have to expect the same now. Sure, this indicator could be wrong, anything can be wrong at anytime, but considering the track record, I would be going against the demonstrated odds to predict further declines in prices. I would imagine that we would have to see a little bit of strength in the dollar to make a struggle higher unfold.
Next week could see some sideways trading. After Tuesday's session, the ranks of attendance on Wall Street will undoubtedly thin due to the July 4 holiday falling on a Thursday.
There is limited downside. I think the lows for this downleg have already been registered.
The Nasdaq has immediate resistance from 1449 to 1491, with a focus of 1480-1486. The 1496-1540 area looks like the best the Nasdaq could achieve in the first lift-off. This area (1496-1540) looks like a likely spot for some concerted profit-taking. There is a congestion of prices at 1519-1538.36. The next resistance is then 1554-1595, with a focus of resistance from 1560-1570. Then thick resistance (above 1595) is at 1620-1654.
The S&P 500 has immediate resistance from 987-1005.58, then 1010-1019, then 1025.93-1039.09. There is a focus of resistance from 1032-1037.80. There is thick price traffic at 1039-1047. The next resistance is 1065-1088.
Immediate Nasdaq support is 1443-1423, with a focus of 1438-1432, then 1414-1394. I have looked at long-term charts for the Nasdaq and the 1380-1200 area looks like a band of solid support which will act as a floor for prices. (The 1380-1200 layer is from the years 1996-1997.) I do not think the index (even if it sold off horribly) could manage more than one close below 1387 and I don't think that it could have a close under 1387 before displaying some kind of trend higher.
Immediate intraday support for the S&P 500 is 980-971.29, then 960-952 (and the entire price range from Sept 21, 2001, which means there is support down to 944). I do not think the S&P 500 could have more than one close below 944.75 (and I don't think that can happen). I have looked at long-term charts of the S&P 500 and we are at the level 960-926 (from late 1997) which should act as a floor for prices.
The Sept. 21, 2001, price ranges were:
• S&P 500 intraday high 984.54, intraday low 944.75, close 965.80
• Nasdaq intraday high 1454.04, intraday low 1387.06, close 1423.19
Cherney is chief market analyst for Standard & Poor's