Markets Moving Sideways

Key technical indicators offer nothing convincing about the direction for prices over the short run

By Paul Cherney

The VIX (market volatility index) continues to see-saw above and below its 10-day exponential moving average. Generally, a move above the 10-day is coincident with declining equity prices and a move below it is coincidental with rising equity prices. Near the close on Tuesday, the VIX's 10 day exponential moving average was 21.71.

The markets are still just moving sideways.

Most indicators I reference are at neutral readings, offering nothing convincing about the direction for prices over the short run.

The VIX will probably have to stay below 21.50 (which is under its 10-day exponential moving average) to suggest higher prices. The potential for sideways markets is increasing as the thickest part of the summer vacation period is only a week or so away and that might mean a lack of buying interest.

Relatively high put/call ratios near the end of the session on Tuesday suggest that there could be at least some upside in the morning on Wednesday, but these markets probably need a huge headline to inspire buying.

Resistance: For the Nasdaq, 1722-1758 now represents big resistance.

Immediate Nasdaq resistance is 1707-1720, with a focus of resistance at 1709.73-1715.79.

The S&P 500's former trading band is now big resistance at 988-1015.41. Its focuses of resistance are 993-1000 and 1010-1015.

Support: The S&P 500 has an important layer of support (stacked) at 988-974. In Monday's session, the S&P 500 printed an intraday low of 975.63. The S&P 500 has an important support level at 974; if it were to spend more than just a few minutes below this level without attracting buyers, I think that would be a sign that the buyers are not interested at current levels and they are probably going to stand back, waiting for lower prices. This means that if prices spend time (more than 10 minutes) below 974, then I would expect the thin shelf of support at 970-964 to fail and that prices will probably have to test 949-912 support. This scenario would not have to unfold one trade day after another, short-term oversold rebounds in price are a natural phenomenon.

The Nasdaq has supports which run from 1699 to 1653. The layers inside this broad band of support are 1699-1697, 1686-1653, with a focus of support at 1682-1664. Due to the nature of the rise since the March lows, Nasdaq supports are stacked; the next support is 1648-1598.

March through June and July saw big stock market gains. The .382 Fibonacci retracement level for the S&P 500 is 930, for the NASDAQ it is roughly 1583. A 50% retracement of the March intraday low to the July intraday high would be about 902. If you looked at a 50% retracement of the worst close to the highest close, it would be about 904. For the Nasdaq, a 50% retracement from the lowest low to the highest high prints would be roughly 1515.

Cherney is chief market analyst for Standard & Poor's