Watching the VXO

The market volatility index is going to have to move below key levels to lend legitimacy to any lift in prices

By Paul Cherney

This is option expiration week.

The VXO (market volatility index) is going to have to get back below its 10-day exponential moving average to lend legitimacy to any lift in prices. On Tuesday, very near the close of trading, the VXO 's 10-day exponential moving average was 18.10.

If I could write the recipe for Wednesday, it would be to start out with a shakeout which forces intraday Put/Call ratios (both Total P/C and Equity Only) above 1.00.

Support: Nasdaq support runs 1,892 through 1,873.62, but the index has another price gap in the charts (the gap created Oct. 28, 2003 has already been filled), the remaining gap was created by the opening of Oct. 27, 2003 and it runs 1,873.62-1,866.43. A partial or complete filling of this gap should attract some bears covering shorts and momentum players might try the long-side at the same time, meaning that there is real potential for an opening drop in prices to satisfy the short-term selling pressure and then prices could lift from their lows.

Next S&P 500 support is 1,037.75-1,029.19.

End-of-day indicators have not really moved into configurations which suggest that the current decline is over, but these indicators will probably lag a turn by a trade day.

Resistance: Immediate resistance for the Nasdaq is 1,906-1,926.00 then 1,930-1,937.92 then 1,945.69-1,956.93.

The S&P 500 has resistance is stacked 1,041.75-1,048.77 and 1,048.11-1,052.10. Additional resistance is 1,054 to 1,062.19 with a focus at 1,056.94-1,060.79.

Cherney is chief market analyst for Standard & Poor's

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