A Lack of Conviction

Longer-term investors are on the sidelines waiting for an inspirational headline to commit funds

By Paul Cherney

In Wednesday's session prices exhibited patterns that have been reinforced over the past 12 trading days: When prices move to the top of the trading range, traders recognize that the top of the trading range has been a good place to exit long-sided trades, and so they do. The lack of volume for the sessions means that longer-term investors are on the sidelines waiting for an inspirational headline to commit funds to the long side.

Markets trade sideways when neither buyers nor sellers have conviction.

I think the downside risk is limited, but a trading range has potential breakout points both up and down and if prices break lower, then that would increase the risk for weakness.

The trading range breakout points are: To the upside, a close above Nasdaq 2,017.66 or S&P 500 1,193.28. To the downside, a close below Nasdaq 1968.58 or S&P 500 1,163.69.

Intraday Nasdaq support is 2,000.56-1992.60.

S&P 500 intraday support is 1,182.85-1,177.68.

The bigger picture for support (daily price bars) is that the Nasdaq has a layer of support at 1,981-1,900, there is a focus of support inside the 1,981-1,900 layer at 1,971-1,954.

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 1,142-1,131.

The Nasdaq has resistance at 1,986-2,008.63, stacked and well-defined at 2,006-2,017.66, making 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, In Wednesday's session, the index managed to print an intraday high of 2,017.08 before sellers became a little more aggressive than the buyers. In recognition of 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 resistances are 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 1,199-1210; resistance gets thick at 1204-1210.54. There is broad resistance at 1,206-1,229.11 which has a focus of resistance at 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 moved lower Wednesday, but prices did not react by moving higher, so I am focusing my attention on the trading range prices.

Cherney is chief market analyst for Standard & Poor's

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