Conditions Still Favorable for Stocks

Longer-term momentum measures for both the Nasdaq and the S&P 500 remain positive

By Paul Cherney

Intel (INTC ) is supposed to report after Wednesday's close -- not on Tuesday as I mistakenly commented yesterday. I had my days mixed up.

If the report impresses positively and there is a surge at the opening, it is important for bulls that the Nasdaq be able to maintain prices above immediate resistance at 2,104-2,113.33.

Immediate intraday resistance for the S&P 500 is 1,127-1,130.75.

Anytime immediate resistance levels are exceeded they must be treated as support until proven otherwise.

Longer-term momentum measures for both the Nasdaq and the S&P 500 remain positive, and I do not have the configurations of indicators which would raise concerns for huge downleg, but daily measures are in positions which can see pops in price which fail to garner significant followthrough higher and sometimes, sloppy, sideways and slightly lower prices can unfold, but for now, downside still appears limited.

The CBOE volatility index, or VXO, is above its 10-day exponential moving average. The chances for a good move higher do not increase until the VXO can start moving lower. Near the close on Wednesday, the 10-day exponential moving average of the VXO was 16.22. If the VXO could move below 16.22 on Thursday, this would be positive. Anytime the VXO is above it's 10-day and moving higher, the chances for big gains weaken.

Thursday's price action will be dictated by market reaction to Intel's earnings report.

Immediate intraday supports for the S&P 500 are a stacked staircase beginning at 1,124-1,119.90. Additional supports are 1,118.48-1,113.69, then 1,106-1,100; the broad support is 1,106-1,068 and 1,083-1,053, which makes a focus of support 1,083-1,068. Price support thickens with prints of 1,096 and lower. A drop to prints under 1,113.69 would not be healthy.

Immediate intraday resistance for the S&P 500 is 1,125-1,128. The longer-term (and older) resistance for the S&P 500 is still 1,116-1,133, then 1,151-1,176.

Immediate support for the Nasdaq is 2,101-2,084, 2,089-2,078, then 2,062-2,047.

Good earnings reports could be viewed as a "sell on the news" event for some companies, capping upside.

There is virtually no competition for an investment dollar. Downside should still be limited, but as the earnings reports for the fourth quarter are delivered, the upside for the markets might be limited as the markets digest some of the gains of the past 15 months.

This quarter is a quarter following a 10%-plus gaining quarter for the S&P 500. Historically, odds are eight in 10 that the S&P 500 will be higher at the end of the March quarter. The average gain (closing basis) by the end of the quarter is 4.05%, based on data since 1958. A 4.05% gain based on the close of the S&P 500 at the end of fourth quarter would leave the index at 1,156.96.

Cherney is chief market analyst for Standard & Poor's

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