Trading Range Likely

There are no strong indications that prices for the S&P 500 or Nasdaq should trend higher or lower

By Paul Cherney

This is option expiration week.

S&P 500 end of day momentum measures are slightly positive.

Nasdaq end of day momentum measures are neutral.

There are no strong indications that prices for either index should trend higher or lower.

Nasdaq chart resistances are: 2,077-2,102, with thick resistance at 2,077-2,087. Next resistance above 2,102 is 2,108-2,153.83.

Chart resistance for the S&P 500 is 1,151-1,176.97, with a layer of well-defined resistance at 1,151.44-1,158.89.

Historical studies suggest that prices at the end of the year will probably be higher than they are now, but here's the short-term view:

Supports are stacked for both the Nasdaq and the S&P 500, which usually makes it pretty hard for prices to drop dramatically without a painful headline.

Immediate Nasdaq support is 2,075-2,060. The next layer of Nasdaq support is a shelf at 2,050-2,042.75, then 2,029-2,016. The index briefly printed inside the 2,050-2,042.75 zone on Friday, Feb. 13, and buyers moved in and prevented prices from moving lower. The low print on Friday was 2,049.76 and this print attracted buyers, so this validates support.

Immediate support for the S&P 500 is 1,147-1,136.66. If the index traveled to under 1,136.66 (not likely with the current configuration of intraday indicators) for more than 4 minutes intraday, risk would open for a test of 1,129-1,124.

Very near the close of trading on Tuesday, Feb. 17, the 10-day exponential moving average of the CBOE volatility index, or VXO, which measures implied volatility in OEX options contracts, was 15.92. If the VXO moves back above its 10-day exponential moving average, that would increase concerns about the potential for downside. Until that happens, assume sideways action, currently with a slightly positive bias overall.

Expectations for a trading range are based on chart observations and the fact that the fourth quarter was a 10%-plus gaining quarter for the S&P 500. Historically, the quarter which follows a 10% gaining quarter sees an average gain of only about 4.0% as of the end of the following quarter. A 4% gain based on the S&P 500's fourth-quarter close of 1,111.92 would equate to 1,156.40.

The chances are good that a trading range market lies ahead as the markets mark time consolidating the gains seen since December.

Cherney is chief market analyst for Standard & Poor's

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE