Positive Bias for Stocks

Recent buying, though hardly a stampede, has been supportive of higher prices

By Paul Cherney

Note: Paul Cherney will be on vacation Monday, Feb. 7. His column will return Tuesday, Feb. 8.

There is a positive bias in place for the S&P 500 index and the Nasdaq composite index. The buying has been supportive of higher prices, but it has not really been a stampede.

There is a positive bias in place until the markets deliver contrary information. I will be monitoring the CBOE volatility index, or VXO, as a warning that downside risk is increasing. A move higher in the VXO that forces it to close above its 10-day exponential moving average would start to raise concerns for lower equity prices. A close in the VXO above its 30-day exponential moving average would probably coincide with aggressive selling.

Very near the close of trading on Friday, the 10-day was 12.22, the 30-day was 12.90. These averages are dropping quickly and there will be new, lower thresholds to consider every day, but until the VXO starts moving higher, or some other technical alarms are delivered by the markets, I assume that buyers are in command.

Immediate resistance for the Nasdaq is a broad band at 2,066-2,116. There are two shelves of resistance within this band: 2,074-2,094 and 2,102-2,111.43.

S&P 500 resistance is 1,205-1,226.27, with a shelf of resistance at 1,205-1,209.53 and another shelf at 1215-1226.

Immediate supports are: Basdaq, intraday 2,075-2,068, then more substantial support at 2060-2049. S&P 500 support is 1,996-1,980, with a focus of support 1,192-1,182.

Historical Fact: In the past 47 years, strength in the first half of February is very common after a down January. Based on S&P 500 data since 1958, 76% of the time, the highest intra-month close for February has occurred on or before the 11th trading day of the month (the 11th trading day this year is Feb. 15). Februaries that follow down Januaries have finished the month lower 65% of the time, so monitoring the VXO is important, because usually, when the VXO is rising, stock prices are falling.

Cherney is chief market analyst for Standard & Poor's