Sellers Take Command

Short-term momentum measures have rolled over to a negative bias

By Paul Cherney

With the earnings reporting season mostly out of the way, I have to wonder: where is the source of headlines to drive stocks higher? It appears that sellers are taking command of the markets.

It is the weakness in the Nasdaq composite index that can pull the S&P 500 index lower.

Wednesday's session ended with short-term momentum measures rolling over to a negative bias. (These measures are based on end-of-day bars, not intraday bars.)

Very near the close of trading on Wednesday, the 10-day exponential moving average for the CBOE volatility index, or VXO, was 11.89, and the 30-day was 12.64. These averages have stopped dropping because the VXO has stopped dropping. It looks like the VXO has started a move higher and usually when the VXO is rising, stock prices are not.

For the S&P 500, immediate supports are numerous; in my opinion, the most important immediate support level is 1190-1185.63, because if this little shelf is undercut, then a stairstep decline might unfold. On the daily charts there is support at 1,184-1,160, but inside this support are shelves. The biggest support looks like 1,178-1,163. Next support is 1,142-1,090.

The Nasdaq's immediate important shelf of support is being tested right now: 2,057-2,049. If this is undercut, the next layer of support is 2,039-2,008, with a focus of support 2,036-2,024.

Nasdaq immediate resistance is 2,062-2,070; substantial resistance is 2,078-2,116.

S&P 500 resistance is 1,195-1,198, then 1,205-1,226.27, with a shelf of resistance at 1,205-1,209.53 and another shelf of resistance 1,215-1,226.

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 (thw 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

Before it's here, it's on the Bloomberg Terminal.