Odds Favor More Gains

The Nasdaq's close above key resistance increases chances for a move higher

By Paul Cherney

The markets delivered bullishly lopsided up volume vs. down volume numbers Friday -- on good volume. Volume measures are positive. Odds favor that the line of least resistance is higher.

The Nasdaq has closed above the 1,933.03 level; my interpretation of the charts increases the odds for a move higher. The next layer of resistance for the Nasdaq starts at 1,960 and runs to 2,055. Resistance in this area is especially thick at 1,972-2,006. After a breakout like this it is natural to see a little profit-taking, I would not become concerned about a failure and a move lower unless the Nasdaq closed under the 1,895.70 level.

Some follow-through buying Monday might push the index higher for 1 to 2 hours. If the index prints 1,960 or higher, that would be a natural spot for some short-term profit-taking so the advance might stall a little.

In my interpretation of the chart, on a purely "by the numbers" basis, it would take an S&P 500 close above 1,131.54 to increase the chances for additional gains. (As of 4:05 p.m. ET Friday, the quote I see for the S&P 500 is 1,131.50.) The chart for the S&P 500 has resistance right on top of current prices at 1,137-1,150.57 (this resistance represents the sideways topping action during June and April). The S&P 500 has additional resistance 1,147-1,163.23, which makes the 1,147-1,150.57 area a focus of resistance.

Key short-term levels for the CBOE volatility index, or VXO, are 13.05, 13.81, 14.92, and 15.47. These are levels that if exceeded would probably coincide with price weakness in equities (the higher the VXO moves, the greater the price weakness, but this would also create a greater chance that a reversal lower in the VXO will ignite aggressive buying).

Immediate support for the Nasdaq is 1,933-1,900.

Immediate support for the S&P 500 is 1,117-1,103.24, overlapped at 1,111-1,101, which makes the 1,111-1,103 area a focus of support.

Immediate resistance for the S&P 500 is 1,137-1,150.57; additional resistance is 1,147-1,163.23, which makes the 1,147-1,150.57 area a focus of resistance.

Immediate resistance for the Nasdaq is 1,960-2,055. Resistance in this area is especially thick 1,972-2,006.

Cherney is chief market analyst for Standard & Poor's

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