Downside Appears Limited

Any short-term weakness in prices will probably attract buyers

By Paul Cherney

This is option expiration week (regular monthly options). Any short-term weakness will probably attract buyers.

The CBOE volatility index, or VXO, is very close to its 10-day exponential moving average; near the end of the trading session on Monday, Apr. 12, the VXO's 10-day exponential moving average was 15.95. Usually, if the VXO moves above its 10-day and is putting distance between itself and the 10-day exponential moving average, equity prices are falling, but that is not the case right now. Assume a positive background for equity prices unless the VXO were to move above its 10 day exponential.

End of day technical measures remain at levels which usually mean limited downside and another multiple day advance should unfold.

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; 1% to 2% below 1,135 would be 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. Downside risk looks limited. At this point, end of day measures remain at levels which are usually in place when the markets have a difficult time moving lower and I expect to see another rise in prices so I do not think the Nasdaq can print inside the price gap unless there is a headline. The Nasdaq has well defined daily bar-chart support at 2,019-1,960.

This is option expiration week and it would not be unnatural to see either Tuesday or Wednesday post minor closing losses, or experience an intraday decline which attracts buyers.

The S&P 500 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 2,072-2,102. This resistance has a focus of resistance 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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