Modest Gains Likely

Longer-term measures remain at negative readings, but they have lost their downside momentum

By Paul Cherney

This is the week of a regular monthly expiration of options and Wednesday appears more likely to be a frustration to the bears than to the bulls. Intraday measures based on 60-minute bars have improved to the point that another day of modest gains appears more likely than lower prices.

Longer-term measures remain at negative readings, but they have lost their downside momentum. At this point, I'm guessing that the markets are currently in a first rebound from oversold (daily charts), but unless there is a terrific improvement in the measures, the first lift, even a multi-day event, probably will not garner follow-through buying, which means that the markets will probably have to spend a couple of days of established a platform, even if there are gains Wednesday.

The S&P 500 has support at 1,084-1,076.32. 60-minute bars show well-defined support established back in the last two months of 2003 at 1,082-1,053 with a focus of support at 1,074-1,063. These prices on the chart look like a natural spot for a floor.

Nasdaq support is 1,889-1,878.77. Additional Nasdaq supports are 1,883-1,841 and 1,870-1,819. This makes the Nasdaq 1,870-1,841 thick with support. There is especially thick action at the 1,850 level. This would make the Nasdaq 1,870-1,850 area a focus of support.

In Monday's (May 17) market, the intraday decline in the Nasdaq found buying support right in the area that looks the most likely to prevent prices from moving any lower. The intraday low print for the Nasdaq on Monday was 1,865.40.

The 10-day exponential moving average for the CBOE volatility index, or VXO, was 18.95 very near the close of trade on Tuesday. VXO prints below the 19.56-19.22 area would be better (for bulls).

One of the problems that you can run into in a market which has delivered such oversold readings for so many days is that the first attempt to move in the positive price direction only brings some scared sellers out of the woodwork as soon as the short-term lift starts to run out of upside momentum, so a jagged price action is still very likely, but downside looks limited.

Longer-term measures of accumulation and distribution remain negative for both indexes and it would take a couple of trade days of positive activity to turn them higher.

Immediate intraday resistance for the Nasdaq is 1,897.57-1,909.

Immediate S&P 500 intraday resistance is 1,091.76-1,097.36.

The Nasdaq has additional resistance at 1,917-1,938, which contains a well-defined shelf of resistance at 1,924.16-1,935.36. In Thursday's session (May 13, 2004) the Nasdaq printed an intraday high of 1,937.87, so this level has an added importance. Nasdaq resistance is stacked: next layer 1,941-1,953.11, then 1,966.66-1,975.57. Next resistance is 1,989-2,009.11.

The S&P 500 has a well-defined shelf of resistance at 1,099.48-1,105.05, and the index has not been able to move above it -- Friday's intraday high was 1,102.37. The band of resistance for the S&P 500 runs all the way to 1,117 and the next layer of resistance is 1,116-1,129.25, with especially thick resistance at 1,126.28-1,129.25. This also creates overlapping resistance at 1,116-1,117. Next S&P 500 resistance is 1,135-1,149.

Cherney is chief market analyst for Standard & Poor's