A Low-Volume Rally

Hedges might get unwound on Monday -- and that could cause some selling pressure on stocks, especially if oil prices are rising

By Paul Cherney

Note: Paul Cherney will be on vacation. His column will return on Tuesday. Sept. 7.

On Friday, Aug. 20, oil prices fell over a dollar and stocks advanced. I still think that no matter when it might happen again, additionally lower oil prices should still be a positive for stock prices.

For Monday, if oil prices move higher then the odds for lower stock prices would increase. This is based on the fact that Friday's price action was on low volume (here's where the summertime question mark comes in; I am always reluctant to read too much into light volume on Mondays and Fridays in the summertime, especially during August) but much of Friday's action might have been related to mechanical unwinding of hedges due to option expiration.

Additionally, as prices moved higher on Friday, there were probably upside hedges put in place just for price action into the close. Those hedges might get unwound on Monday and that could represent some selling pressure in stocks especially if oil prices are rising.

The S&P 500 is inside the second layer of stacked resistance which is 1,096.96-1,108.60. Resistance inside this layer becomes especially thick with prints of 1,103 and higher. Next resistance above 1,108.60 is 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37.

Immediate S&P 500 support is 1,095-1,090, stacked at 1,090-1,082.

The Nasdaq's next layer of resistance is 1,842-1,864.80, the resistance starts 1,939 and higher, but it does not become organized until 1,942 and higher. Next resistance is 1,874-1,880.81, then 1,892-1,933. I think it would be bullish if the Nasdaq could generate higher volume and manage to close above the 1,896 level. I would need to see total trading volume near 2 billion shares or higher (doubtful).

Immediate intraday support for the Nasdaq is now 1,831-1,818. Stacked at 1,816-1,803. Additional Nasdaq support is 1,800-1,777.

As per the previous column, the lack of robust total trading volume raises real doubt as to the ability of the markets to enter a prolonged trend higher.

Cherney is chief market analyst for Standard & Poor's

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