More Basing Action Needed?

Tuesday's session didn't offer any pronounced strength in terms of total volume

By Paul Cherney

The improvement in stock prices in the face of higher oil prices suggests to me that if we can get another session of lower oil prices, stocks should move higher. But the session on Tuesday, Aug. 17, didn't offer any pronounced strength in terms of total volume, so more basing action might be needed.

On the plus side for now: The ratio of up volume to down volume remains constructive. But I do not have anything overwhelmingly bullish in the technical measures.

This is option expiration week and sometimes the opening move in the morning on Wednesdays proves to be short-lived, creating the potential for an about-face and an intraday trend in the other direction by the afternoon.

Immediate intraday resistance for the Nasdaq is 1,785-1,798.52, and 1,793-1,808.70. There is a price gap in the Nasdaq 60-minute charts at 1,808.70-1,820.21. Gaps are natural chart points for prices to pause. But if the Nasdaq could move above and close above the 1,820.21 level, that would be an encouraging sign to bulls. Just a move higher and a close above 1,808.70 would force me to doubt expectations that the current lift will not attract significant follow-through to produce a trend higher.

The immediate resistance for the S&P 500 is 1,082-1,089.66.

The Nasdaq index has immediate intraday support 1,789-1,777, overlapped at 1,781.54-1,770.51, making a focus of intraday support 1,781-1,777. It would probably not be a healthy sign if the Nasdaq spent more than 4 minutes below the 1,777 level without attracting buyers to lift prices. Next support is 1,764-1,751.95. The intermediate term support is 1,776-1,600, and thick price traffic at 1,744.60-1,675 and 1,771-1,734. This makes the 1,744.60-1,734 area a focus of support.

S&P 500 intraday support is 1,075-1,070.33. It would be a sign of short-term weakness to see prints last for more than 4 minutes below the 1,070.33 level. Next support is 1,067.78-1,060.91. This is well-defined support. Additional S&P 500 support is 1,046-1,030, with a focus at 1,060-1,046.

Besides the intraday resistance mentioned above, additional resistance levels for the S&P 500 are 1,086-1,092, then 1,103-1,109.30.

The CBOE volatility index, or VXO, is probably going to have to move below 16.90 to offer substantive confirmation of any intraday move higher on Wednesday.

Cherney is chief market analyst for Standard & Poor's

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE