Stocks Still Finding a Base
By Paul Cherney
Higher oil prices finally appeared to have an impact on stock index prices on Thursday, Aug. 19. But, on any single trading day, a sell-off in oil should help push stock prices higher.
Thursday's price action deviated grossly from the price action in the aftermath of the June 23 excessively positive 60-minute volume measures for the Nasdaq. In the five trading days after the June 23 signal, the lowest print represented a decline of only 0.35% from the June 23 close. The equivalent value for the current Nasdaq market would have been 1,824.96, but in Thursday's market, the Nasdaq undercut that level by a wide margin when it printed a low of 1,811.88. I now have to regard this as a failed signal/observation. But so far, volume measures on the 60-minute charts have not weakened to levels that would tilt the odds to expect a trend lower.
Wednesday's jump in prices was a weak toss in terms of total volume. The formula I use to measure total trading volume versus its moving average is volume divided by the previous day's 50-day simple moving average of volume. At the Nasdaq's October, 2002, follow-through day, volume was 1.28 times its 50-day MA; at the March, 2003, follow-through day, volume was 1.34 times the 50-day MA. On Thursday, Nasdaq volume was about .96 times its 50-day MA. I
n the past, I have looked at follow-through days and you do not need to have big volume on a follow-through day, but you do have to see prices subsequently continue to move higher and break above resistance (daily bar charts). For the Nasdaq, it would probably have to close above 1,896 within the next 5 to 7 trading days on increasing volume and I do not think that is going to happen.
What does Wednesday's slack volume mean to me? It suggests that Wednesday's higher prices were more a function of players already in the market, meaning short-covering and momentum players, rather than a stampede of "new" money coming into the market from the sidelines, voting with their dollars their belief in a new trend to the upside.
More basing action will probably have to unfold. But any trading day that sees a sell-off in oil is probably going to see higher stock prices.
Immediate intraday resistance for the Nasdaq is now 1,818-1,831.37, then 1,842-1,864.80. Next resistance is 1,874-1,880.81, then 1,892-1,933.
Immediate intraday resistance for the S&P 500 is 1,090.62-1,095.08; the next resistance is stacked at 1,096.96-1,108.60. Inside this zone, resistance gets thick at 1,103 and higher. Resistances are stacked due to the nature of the decline. Next resistance starts at 1,114 and higher.
Immediate support for the S&P 500 is 1,090-1,082, then 1,075-1,070.33.
The Nasdaq index has immediate intraday support at 1,816-1,803. Additional Nasdaq support is 1,800-1,777.
Cherney is chief market analyst for Standard & Poor's
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