Downside Risk Appears Limited

Bulls have not yet been able to demonstrate that they are willing to be aggressive buyers at higher prices

By Paul Cherney

The markets have spent 11 trading days moving sideways and that has been long enough to suggest a neutral condition. Markets trade sideways when neither buyers nor sellers have conviction. Conviction can be measured in volume and volume has been unimpressive. It is a stalemate right now.

These markets continued to base; they are waiting for a headline. I think the downside risk is limited, but I also recognize that the bulls have not yet been able to demonstrate that they are willing to be aggressive buyers at higher prices. And, bears have not been able to attract additional sellers at lower prices.

The markets are in a trading range and here are the potential breakout points: To the upside, a close above Nasdaq 2017.66 or S&P 500 1193.28. To the downside, a close below Nasdaq 1968.58 or S&P 500 1163.69.

The Nasdaq has support at 1,981-1,900; there is a focus of support in the 1,971-1,954 area, so even if there is a move lower, out of the current trading range, it might not move very far.

Immediate support for the S&P 500 is 1,179-1,160.52, but the lowest price print of the last 11 trading days has been 1,163.69, and that is the price point mentioned above as a possible breakdown point. The S&P 500 has a concentration of support at 1,169-1,163. Under 1,163, the next layer of support is 1,147-1,120; inside 1,147-1,120 there is a focus of support at 1,142-1,131. The Nasdaq has resistance at 1,986-2,008.63, stacked and well-defined at 2,006-2,017.66, aking a focus of resistance 2,006-2,008.63. A close above 2,008.63 should force a wave of buying at the open on the following trading day. Nasdaq prints 2,016 through 2,027 are thick with resistance, but in deference to the trading range mentioned above, I would view a Nasdaq close above 2,017.66 as increasing the potential for a short-term leg higher. Next resistance is 2,036-2,059 and 2,047-2,069.42 which makes the 2,047-2,059 area a focus of resistance. Additional resistances are directly over the 2,069 level at 2,078-2,093.68 and 2,101-2,111.43.

The S&P 500 has immediate resistance at 1,178.82-1,189.80; there is a particularly well-defined layer of resistance at 1,183.78-1,188.40 (generated ahead of the FOMC announcement on Tuesday, Mar. 22). Next resistances are 1,190-1,193.28, then 1,199-1,210; resistance gets thick at 1,204-1,210.54. There is broad resistance 1,206-1,229.11, which has a focus of resistance 1,213-1,219. Above 1,229, the next layer of resistance is 1,240-1,286 with a focus at 1,246-1,261.

The VXO probably has to move below 12.88 (chart-read) to offer real encouragement to bulls. When the VXO moves lower, stock prices are usually moving higher. When the VXO moves higher, stock prices are usually moving lower. Just a move below 13.20 might be a background positive on Wednesday.

Cherney is chief market analyst for Standard & Poor's

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