A Wednesday Turnaround?

The session may see some early downside, but due to the unwinding of hedges, a reversal could easily unfold

By Paul Cherney

The price action seen Tuesday, Nov. 16, can be a set-up for some weakness at Wednesday's open, but opening weakness often does not attract followthrough selling.

The price pattern I expect to see on Wednesday would be downside in the morning, but due to the unwinding of hedges, a reversal can easily unfold.

I used to call the Wednesday of Option expiration week a.m./p.m. reversal day, meaning, prices can start the session (a.m.) in one direction, but the momentum in that direction can run out of strength and ultimately (p.m., meaning by the afternoon) there can be a move in the other direction or at least well up off the intraday lows. I have not been able to find a filter to allow me to gauge the intensity of whether there will be a big drop that lasts all morning on Wednesday, or just a brief period of weakness (15 minutes) at the morning open.

If the pattern unfolds, I think the CBOE volatility index, or VXO, would have to move below the 13.56 level to offer short-term confirmation of an intraday lift in prices. If the pattern unfolds, it could very well be just a one-day event. These markets have moved aggressively higher since the week before the election and it would not be surprising to see multiple trading days in which the major indexes basically moved sideways.

The technical condition of the market has not really changed: the trend for prices remains positive. Retracements are a natural part of any advance. End-of-day momentum measures suggest that any short-term price weakness should attract buyers, not sellers, so downside risk should be limited.

Nasdaq resistance is 2,049-2,094. Resistance thickens at 2,079-2,094. The next resistance is 2,108-2,153.83.

Immediate intraday Nasdaq support is 2,068-2,025, with thick intraday support at 2,068-2,056. Another layer of strong support exists at 2,036-2,027.69. Next intraday support is 2,020.67-2,002.

S&P 500 intraday support is 1,177-1,160. Support is thick at 1,170-1,160; the next layer of organized intraday support is 1,147-1,138.50.

The S&P 500 has thick resistance at 1,185-1,226.

We are at the beginning of what has been historically, on average, the three best-performing months of the year: November through January.

Cherney is chief market analyst for Standard & Poor's

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