A Strong Headwind for Stocks

Significant follow-through gains are not likely with the current technical conditions in place

By Paul Cherney

End-of-day indicators remain negative but have lost their downside momentum, which opens the possibility for a short-term lift in prices, but significant follow-through higher is not likely with the current technical conditions in place.

I think the easiest way to gauge this market is to look at the VIX (market volatility index). My read of the intraday chart suggests that it has to move below the 35.05-34.75 level to signal a rising market. The VIX is still above its 10-day exponential moving average which finished Friday near 34.27.

The markets are currently registering oversold readings and a bounce could occur at any time, but the current focus on potential military action in Iraq will probably act like a cap for prices until there is definitive path chosen.

The Nasdaq has managed to close inside the lower edge of immediate intraday support at 1333-1320. The index has a layer of substantial end-of-day buying support which runs from 1320-1280.

The Nasdaq has immediate intraday resistance at 1336-1345. The index has substantial resistance at 1358-1383.

The S&P 500 has support at 852-844. The S&P 500 printed an intraday low of 840.34 in Friday's session, this has increased the chances for a test of the support established in October, 2002, which is 806-768. There is no timetable for a test. Often, a 61.8% retracement of a move can spark a short-lived jump in prices.

The S&P 500 has a small shelf of intraday resistance at 851-856.30; the index has established more substantial resistance at 858-869. The thickest resistance inside this shelf of resistance is 862-865. Thick, substantial, resistance is 876-890 and if there is a rebound from short-term oversold conditions (and the 61.8% retracement) then this 876-890 are is likely spot for the rebound to run out of upside momentum. Other technical conditions could arise.

Cherney is chief market analyst for Standard & Poor's