Keeping a Positive View

Key technical measures continue to produce oversold readings

By Paul Cherney

There have been oversold readings produced in the 60-minute measures, but these measures have not yet recovered to the point that I would guess that higher prices should unfold. A step in the right direction would be a demonstration of the ability of prices to move higher, and exceeding even the most immediate resistance would be an intraday positive.

Immediate intraday resistance levels which were established on Monday, Apr. 26, are 1,138-1,140.67 for the S&P 500 and 2,042-2,049.91 for the Nasdaq.

The CBOE volatility index, or VXO, is below its 10-day exponential moving average, and I view that as a background positive for stock prices. Near the end of the trading session on Monday, Apr. 26, the VXO's 10 day exponential moving average was 15.38. It would probably take a move below the 14.53 level to signal some advantage to the bulls.

So far, since the lows of Wednesday, Apr. 21, the end-of-day technical measures have not improved to the point that I would expect a residual positive bias for prices. For now, though, maintaining a positive view unless or until contradictory technical evidence emerges.

Nasdaq resistance is a band at 2,037-2,079, inside this band there is thick resistance at 2,048-2,064.

The S&P 500 has a layer of resistance at 1,135-1,149. The index has stacked resistance. The next layer of S&P 500 resistance is 1,149-1,176.97, with especially thick resistance at 1,149-1,158.98. The March, 2002, charts show a well-defined layer of resistance for the S&P 500 at 1,166.27-1,173.94.

Immediate intraday resistance (established on Monday) for the S&P 500 is 1,138-1,140.67

The S&P 500 has immediate support at 1,125.72-1,116. Inside this layer there is a focus of support at 1,124-1,120.82. In the Monday, Apr. 26, session it was not particularly healthy that the index undercut 1,134.21, but those prints did not generate a wave of new sellers. The longer-term band of support is 1,125-1,102. There is thick support at 1,125-1,113. Wednesday's intraday low was 1,116.03, but if prices were to move below that level, odds increase for additional downside (not expected right now).

Immediate Nasdaq support is 2,019-1,960. There is a layer of especially well-defined support which starts at 1,985 and runs to the 1,960 area. The Nasdaq's intraday low on Wednesday was 1,973.25. Next support is 1,920-1,896.

Immediate support for the Nasdaq is now 2,027-2,019; more substantial support for the Nasdaq is 1,994-1,973, with a well defined shelf at 1,993-1,984.37.

Reminder: An update to the technical study I did last week that looked at the price action in the S&P 500 after the ratio of decliners to advancers at the NYSE was over 6.0 comes into play. Since the S&P 500 has had negative closes since the Apr. 13 signal date (the close on the day of the signal was 1,129.44 and Tuesday, Apr. 20, saw the S&P 500 close at 1,118.15), I eliminated all the previous signals which never posted a negative close and recalculated the average performances of the best closing gains. Once I eliminated those signal dates, the average of the best closing gains during the first 22 trading days after similar technical conditions in the past became a gain of 3.86%, which for this market equates to an S&P 500 close of 1,173.04 sometime on or before Thursday, May 13, 2004.

Remember, that's just an average performance price. The S&P 500 might or might not reach that level on or before May 13, but right now, price and volume measures are moving in the right direction to support the notion of higher prices yet to come. (The study was based on signal dates when the NYSE decliners divided by advancers was over 6.0 and the S&P 500 closed the session in the upper half of both its 50- and 100-day trading ranges.)

Cherney is chief market analyst for Standard & Poor's

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