Seasonal Weakness May Be in Store

Based on S&P 500 data from 1986 to 2003, prices might move lower in the next few trading days

By Paul Cherney

On Friday, Feb. 20, intraday indicators based on 60-minute S&P 500 bars displayed configurations which raise expectations that even a one day token lift will probably not find follow-through. The index usually will experience a second leg lower which undercuts what would be the equivalent of Friday's low print for the S&P 500 of 1,139.00.

Based on S&P 500 data from 1986 to 2003, there is a strong seasonal pattern apparent after the Friday of February expiration. For the past 19 years, on average, prices have tended to bottom on the fourth trading day after February expiration. For this year, that fourth trading day would equate to Thursday, Feb. 26.

Will history repeat itself? History never repeats exactly. But, if technical measures are in positive configurations or turn positive close to Thursday, Feb. 26, then there would be agreement between technicals and historicals and that would bolster confidence to expect something to the upside after some lower prices over the next few trading days.

For Monday, Feb. 23, the day after February Option Expiration, based on S&P 500 price action since 1974, odds are 16 of 31 for a gain, that's 51.6% of the time, a virtual coin-toss.

Nasdaq immediate intraday chart resistance is 2,049-2,062.48, then 2,072-2,085.32. There is a bigger band of resistance at 2,077-2,102, with thick resistance at 2,077-2,091. Next resistance above 2,102 is 2,108-2,153.83.

Chart resistance for the S&P 500 is 1,149-1,176.97, with a layer of resistance at 1,149-1,158.89.

Historical studies suggest that prices at the end of the year will probably be higher than they are now, but for the next few trading days prices might move lower.

Immediate Nasdaq support is 2,036-2,022 and 2,029-2,012, which makes the 2,029-2,022 area a focus of support. Next support is 2,007-1,970.

Immediate support for the S&P 500 is 1,148-1,136.66. If the index traveled to under 1,136.66 for more than four minutes intraday, risk would open for a test of 1,129-1,124.

Cherney is chief market analyst for Standard & Poor's

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