Bulls and Bears in Balance
By Paul Cherney
Wednesday's price action epitomized the state of the markets since the end of 2004: Unable to generate convincing follow-through in either direction. Measures of price momentum and volume are at neutral readings, offering no predictive value. These markets are waiting for a headline and maybe the nonfarm payrolls data scheduled for release on Friday, Mar. 4, will deliver something to push prices one way or the other.
Before we get to Friday, though, there is Thursday, and under the current conditions it would be very easy to expect more of the same, a market that is unable to generate significant follow-through in either direction. Caution ahead of Friday's employment report could create a market of little real movement on Thursday.
If the Nasdaq composite index moves and closes above 2,093.68, or the S&P 500 closes above 1,217.90, I would expect a short-term wave of buying (a short-term trend of maybe 3 to 5 trading days).
Both the Nasdaq and the S&P 500 are right at significant resistance levels and so far, those resistance levels have been a strong, well-defined barrier to price advancement. Sometimes, prices have to regroup at lower levels before a successful assault can take place.
Immediate resistance for the Nasdaq is substantial (many days) in the 2,068-2,111.43 area. There is a focus of resistance at 2,078-2,093.68.
One of the big problems with the Nasdaq's attempts to move higher (Feb. 15 and 16, and Feb. 7 and 8) was that while price had moved higher, there was no technical evidence of a stampede of aggressive buyers. Bigger total volume would increase the chances that investors, whose time horizons are greater than "intraday" or just "a few trading days," have taken an interest in putting money to work on the long side.
For the S&P 500, immediate resistance is 1,212-1,217.90. Resistances are stacked and overlapped at 1,215-1,226.27, making the 1,215-1,217.90 area a focus of resistance.
The S&P 500 has immediate support at 1,206-1,197. Next support is 1,190-1,184.16 and at least one close inside this area looks likely if prices can't make a break above 1,217.90 by Friday's close. If there is a retracement that undercuts the 1,184.16 mark that would be a short-term negative and I would expect a little follow-through lower. S&P 500 1,184.16 was the low and close on Tuesday, Feb. 22. On the daily charts there is S&P 500 support at 1,184-1,160; inside this support are shelves. The biggest support looks like 1,178-1,163. Next support is 1,142-1,090.
The Nasdaq has immediate support at 2,055-2,036 and 2,038-2,023. There is a layer of thick support at 2,047-2,036. This area held prices in Monday's session (the intraday low was 2038.77 on Monday, Feb. 28). A move below 2,038.77 that lasts more than 4 minutes would probably be a negative. If there were a move below 2,023.00 it would be a negative, too, meaning probably weaker prices to follow.
The 30-day exponential moving average of the VXO was 12.10 near the close of trade on Wednesday. Usually when the VXO is above its 30-day and putting distance between itself and its 30-day, stock prices are falling.
Anytime supports are undercut they convert to resistance until broken. Anytime resistances are exceeded, they convert to supports until proven otherwise.
Cherney is chief market analyst for Standard & Poor's