Trading Ranges Persist

There are not enough short-term indicators lining up to make a call as to one direction or the other for stock prices

By Paul Cherney

The trading ranges persist and I simply do not have enough short-term indicators lining up to make a well-founded guess as to one direction or the other.

Based on S&P 500 data since 1986 (18 June Triple Witches), the first trade day after the June Triple Witches has seen the index move greater than 1% (in either direction) 5 out of 18 times (28% of the time). Those 5 times were: 1990, -1.66%; 1991, -1.80%; 1997, -2.23%; 2000, +1.47%; 2003, -1.41%. These are small odds and I would tend to think that another small-range trading day can unfold.

But making a bet on direction (gain or loss) for Monday is truly a coin-toss; out of 18 June Triple Witches since 1986, 9 were followed by gains and 9 were followed by losses.

The overnight systems run on Thursday, June 10, produced two minor signals with negative implications but price action on Friday produced a chart pattern so incongruous with the patterns after the other signals that I now consider the June 10 signals wrong and defunct; they do not apply to the current market.

The CBOE volatility index, or VXO, is very close to its 10-day exponential moving average which adds to the uncertainty of price direction. Stock prices usually move higher when the VXO is moving lower. In Friday's session, the VXO printed a low of 14.48 and it would probably have to undercut that level to bolster confidence in higher stock prices. Near the close on Friday, the 10-day exponential moving average of the VXO was 15.18. Stock prices often move lower when the VXO moves above its 10-day exponential moving average and puts distance between itself and the 10-day.

The shelves of price action established midday on Wednesday, June 9, represent the most important immediate short-term resistance levels. Those midday shelves are: Nasdaq, 2,001-2,006.79; S&P 500, 1,134.34-1,136.53. In Friday's session, the S&P 500 managed to spend some time above 1,136.53 with an intraday high of 1,139.08, so that now becomes the upper edge of immediate intraday resistance for the S&P 500: 1,134.34-1,139.08.

S&P 500 support is 1,129-1,009.91, with a concentration of price action at 1,125-1,113. Next support: 1,102.77 to 1,078, with a focus at 1,097-1,085.

The Nasdaq, once again, closed within immediate support that is 1,996-1,982.41. Next support is 1,977-1,963.48. The lowest print for the Nasdaq over the past 15 trading days has been 1,957.58. A close below this level would open downside risk for a test of the next layer of support: 1,934-1,913.73. Overlapping support is 1,918-1,899, so the 1,918-1,913 area is a focus of support.

Most of the comments I make are short-term price concerns. On a more intermediate term basis, S&P 500 weekly data retains a positive bias. Nasdaq is neutral with a slightly negative bias.

Historical studies for Presidential election years are heavily weighted to expect higher prices by the end of the year.

Cherney is chief market analyst for Standard & Poor's

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