Downside Risk Appears Limited

The markets might be on the verge of another small leg to the upside

By Paul Cherney

The VIX (market volatility index) managed to move back below the 23.40 level on Monday, which was an indication that option activity favored higher equity prices. The VIX is probably going to have to stay below 23.06 on Tuesday just to keep the odds in favor of higher equity prices.

The Conference Board's consumer confidence report for April will be released on Tuesday at 10:00 a.m. ET. Wall Street estimates are for a rise from last month's 62.5, but the Street estimates vary greatly starting at 70 and working higher. On Friday, strong University of Michigan sentiment numbers did nothing for the markets partially due to the shadow cast by the weaker than expected 1.6% growth in first-quarter GDP.

Downside risk appears limited due to the stairstep nature of the supports. The markets might be on the verge of another small leg to the upside. If the Nasdaq can move above 1468.08, prints of 1485 and higher look likely. If the S&P 500 can move above 919.74, then prints of 924-935 look likely.

Supports: Substantial supports are 1426-1392 for the Nasdaq and 911-877 for the S&P 500, with especially thick support starting with prints of 896 to 887.

Resistances: S&P 500 resistance is 918-935 with a focus of 924-931. The next resistance is 951-965.

The Nasdaq has two focuses of resistance created by the price action near the January, 2003, top and the November, 2002, top. They are 1433-1467 and 1445-1474.69. These resistances overlap at 1445-1467. Next resistance is 1495-1521.

Cherney is chief market analyst for Standard & Poor's

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