Stocks Vulnerable in the Short Term

End of day technical measures have weakened a little, but still remain at levels which usually mean limited downside

By Paul Cherney

Historical odds for Thursday, Apr. 8, were that 63% of the time, the S&P 500 closed with gains on the day. That turned out to be wrong.

Since 1972, the S&P 500 has closed with a loss on the Monday after Easter 72% of the time (I have no idea why).

There is vulnerability to the downside, but it should be only a short-term window of time, as few as 1 more trade day, maybe up to 4.

The CBOE volatility index, or VXO, is very close to its 10-day exponential moving average. Near the end of the trading session on Thursday, Apr. 7, the VXO's 10-day exponential moving average was 16.04. Usually, if the VXO moves above its 10-day, and is putting distance between itself and the the 10-day, equity prices are falling.

End of day technical measures have weakened a little, but still remain at levels which usually mean limited downside and another multiple day advance should unfold after short-term selling is exhausted.

In Tuesday night's overnight systems run, a signal was issued which usually sees sideways price traffic for a few trade days (S&P 500), so maybe that has to work itself out. Hesitancy to establish new long positions ahead of a 3-day weekend could have been a factor in Thursday's market.

The S&P 500 has stacked support at 1,149-1,135, then 1,135.67-1,129.94, then 1,125-1,113. Next support is 1,101-1,087.06. If the index were to move below 1,135.00 for more than 4 or 5 minutes without attracting buyers to lift prices, then immediate downside risk for a move 1% to 2% lower would increase. A move of 1% to 2% below 1,135 would put the index at 1,124-1,112.

Immediate Nasdaq support is 2,064-2,049, then 2,036-2,011; there is a focus at 2,036-2,024. The index created a gap in the price chart on Friday, Apr. 2, and the gap remains open at 2,037.19-2,019.09. I think I have to treat Wednesday's swing low of 2,038.74 as a first test of the gap. The first test of a gap often leads to a good rebound, which we saw yesterday (intraday), but if prices move back into the gap, there might have to be more "filling" of the gap this time. Downside risk looks limited to prints inside the gap. The Nasdaq has well defined daily bar chart support at 2,019-1,960.

The S&P 500 has immediate intraday resistance at 1,141.70-1,145.65. The index has a well-defined (strong) band of resistance at 1,149-1,176.97, with a layer of resistance inside this zone at 1,149-1,158.98. I have reviewed charts from March, 2002, and there is a well-defined layer of resistance for the S&P 500 at 1,166.27-1,173.94.

The Nasdaq has immediate intraday resistance at 2,054.34-2,064.94. The bigger Nasdaq resistance is 2,072-2,102. This resistance has a focus of resistance at 2,072-2,091. Next resistance above 2,102 is 2,108-2,153.83. Any time resistance is exceeded it must be treated as support until proven otherwise. Anytime supports are undercut they must be considered resistance until proven otherwise.

Cherney is chief market analyst for Standard & Poor's

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