Watching Volatility Signals

If the VXO index moves above key levels, some short-term profit-taking may weigh on the markets

By Paul Cherney

Expectations for S&P 500 1,068 or higher, and a Nasdaq close of 1,988, both before Dec. 8, are still in play. A move to these levels seems inevitable as each of these prices is only about 1% above current prices. But a rising VXO (market volatility index) would not lend itself technically to expectations for a move higher. So far, the VXO has continued to be cooperative, assume same until proven otherwise.

If the VXO starts rising and moves above its 10-day exponential moving average some short-term profit-taking will be weighing on the markets.

These markets are ripe for a day of profit-taking, but due to the stairstep price patterns of the past 3 trade days, it is highly doubtful that there can be a dramatic drop without some sort of exogenous event.

A rising VXO would raise concerns about short-term downside. Near the close of trade on Monday, Nov. 3, the VXO's 10-day exponential moving average was near 17.93.

Immediate intraday supports: Nasdaq intraday support is 1,962-1,957.83; a drop below 1,957 for more than 4 minutes without attracting buyers would open immediate downside risk for a 10-point drop (to prints in the 1,947 area). Supports are stairstep and the next layer was established on Thursday, Oct. 30, at 1,949-1,941; the next stairstep is 1,939-1,924.07.

S&P 500 supports are a small shelf at 1,055.12-1,048.75, then stacked at 1,046-1,043.

Resistance levels: Nasdaq immediate resistances are 1,979-2,011.25 and 2,042-2,073.

The S&P 500 has immediate resistance: 1,068-1,106 with thick, "brick-wall" style resistance at 1,068-1,090.

Cherney is chief market analyst for Standard & Poor's

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