Taking Direction from Dell
By Paul Chereny
Dell Computer (DELL ) reports after the close Thursday; a good reaction to their earnings/comments should produce a shot to the upside on Friday.
Friday is option expiration and there is the potential to see the effect of a well-received Dell earnings report and comment multiplied by the expiration machinations.
Ultimately, if Dell is able to inspire buying that lasts for more than just intraday on Friday, the historical odds are still weighted toward a correction, but as long as the VIX (market volatility index) remains below its 10 day exponential moving average it is inappropriate to suggest that a correction has started.
Near Thursday's close, the 10-day exponential moving average of the VIX was 22.75. Usually, when the VIX crosses back above it's 10 day exponential moving average, equity prices suffer. A VIX below 21.77 on Friday will probably keep the bulls in charge.
The Nasdaq has a focus of resistance 1547-1568 (daily charts).
The S&P 500 has a focus of resistance 951-957 (daily charts). Reluctance to expect a huge trending move higher is in part based on the historical price performance of the S&P 500 when the percentage of "bearish" advisors (%bears) in Investor's Intelligence weekly poll is less than 25.1%. Historically, the odds have been that 64% of the time, the S&P 500 has experienced a close which represented a loss of over 2% from the day that the %bears moved under 25.1% was announced, so far, the current market has seen a closing loss of 1.01%, which occurred on the day after last week's Wednesday announcement. If you averaged all the "worst" closes experienced during the prior 14 occasions, the average worst closing loss was a loss of 2.35%; for the current S&P 500 that would equate to a close of 907.77. History never repeats exactly, but this is a consideration. If the VIX starts a trend back above its 10 day exponential, S&P 500 prints under 910 could become a reality.
The Nasdaq has immediate resistance 1543-1595 with a focus of resistance 1547-1568.
The S&P 500 has immediate resistance (established in August of '02 and the beginning of July of '02) at 944-965 with a focus of resistance 951-957.
Immediate support for the S&P 500 is 939-929 with a focus 934-930.
Immediate support for the Nasdaq is 1532-1510 with a focus 1525-1515.
Cherney is chief market analyst for Standard & Poor's