Positive Bias Still in Place

Downside should be limited and higher prices should unfold

By Paul Cherney

Note: Paul Cherney will be on vacation Thursday, July 1 and Friday, July 2. His column will return Tuesday, July 6.

This year, the last trade day before the July 4th holiday is Friday, July 2. From 1959 through 2003, the last trade day before the July 4th holiday has gained 27 out of 45 times, or 60% of the time. The average of all performance (gainers and losers) is a gain of 0.18%. For this day, historically, there were 6 times that the S&P 500 gained 1% or more, and there were 2 times when the S&P 500 lost 1% or more. The chance of a move greater than 1% in either direction is 8 out of 45, or 18% of the time.

Thursday, July 1, 2004 represents the trade day before the last trade day ahead of the July 4th holiday. This day has also seen the S&P 500 close with a gain 27 out of 45 times, or 60% of the time. The average of all performances (winners and losers) has been +0.16%.

The first trade day after the 4th of July holiday has historically seen gains 21 out of 45 times, or 47% of the time. The average of all performances was insignificant, or -0.09%.

The technical case for the NASDAQ and the S&P 500 remains the same, neutral with a positive bias.

Lingering in the background: On Friday, June 25, the NASDAQ had a close above 2023.54 and this has potentially short-term bullish overtones. The recent trading range has been 2023.54-1963, or 60 points, so the potential upside target would be 2083.

On Wednesday, June 23, the S&P 500 closed above the 1142.18 level. This represents a bullish breakout of the recent trading range and should be treated as such unless proven otherwise. The standard calculation for a potential price target is to take the trading range (1142-1122) and add it to the breakout point which would create a potential target of S&P 500 1162.

Intraday rises that were turned back have established another set of important price levels for both the NASDAQ and the S&P 500. The NASDAQ has moved above 2039.93, which had been a price point where sellers were found. Since the NASDAQ has exceeded this level, it now represents the beginning of the first line of support.

The S&P 500 1146.34 level has not been exceeded yet. Any rise that cannot produce an S&P 500 close above 1146.34 would increase the chances for some slow motion sideways trade in the upper half of the recent trade ranges.

The VXO's 10-day exponential moving average was 14.78 near the close on Wednesday. Stock prices often move lower when the VXO moves above it's 10-day exponential moving average and puts distance between itself and the 10-day. Conversely, stock prices usually rise when the VXO moves below its 10-day and puts distance between itself and its 10-day.

The NASDAQ's resistance is a band 2037-2079, inside this resistance is thick price action 2048-2064.

The NASDAQ has support 2040-2033.40 then 2023-2013.73, then 2006-1960 with a focus 2002-1985. If the NASDAQ were to weaken and undercut the 2013.73 level (not expected), that would increase the odds for a test of the next layer of NASDAQ support that is broadly 2006-1960 with a focus of support is 2002-1985.

The S&P 500 has immediate intraday resistance 1141-1146.34. Additional resistance is 1149-1176.97 with especially thick resistance 1149-1158.98. The March 2002 shows well-defined layer of resistance 1166.27-1173.94.

The S&P 500 has support 1137-1134. Next support is 1129-1113.

Downside should be limited and higher prices should unfold. Friday, July 2 is a day that really should not be included in a technical assessment of the market because the trading volume might be thinner than normal due to empty desks ahead of the July 4th weekend.

Cherney is chief market analyst for Standard & Poor's

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