By Paul Cherney Intraday indicators based on 60-minute bars and measures which combine price with volume are in configurations very similar to last Wednesday's (July 3) readings, suggesting technical conditions are ripe for further upside in Friday's session for both the Nasdaq and the S&P 500.
The daily total volumes for the NYSE and the Nasdaq indexes in Thursday's session were hefty, suggesting that some sort of a small capitulation took place.
The CBOE Put/Call Ratios did not really hit capitulation levels, which suggests to me that even though there should be some sort of short-covering lift in prices, the first lift from these lows might not be able to generate a "never look back" trend higher, and that there will probably be some retracement after this initial lift gets underway. Short-covering rallies usually last as few as one to as many as 4 trade days. Lately, short-covering advances have lasted 1 to 2 trade days.
The S&P 500 tested and found buying support inside the focus of support mentioned in yesterday's comment: 906-896, the intrday low from Thursday's session was 900.94. Immediate support is 906-893. The broad layer of support is 986-893 and was established during the months of July 1997 through Jan 1998.
This pattern, as described in yesterday's end of day comment, occurred in Thursday's session: "There has been a pretty consistent pattern in intraday prices which has preceded days of gains, and there is a possibility we could see it on Thursday. I would want to see a drop at the open, an attempt to lift (intraday) which fails, a move to new lows and then a lift in prices which creates closes which are at or above the open for the session."
The VIX (volatility index) did not get below 36.00, but the chart pattern for the VIX (end of day bars) is increasing the chances for additional gains tomorrow.
A move and close below the 10 day exponential moving average of the close of the VIX is still an event I think would increase the chances for something more than a one or two day rebound in prices. (I recognize that this has failed twice before in the last few weeks because it only generated one close below its exponential moving average before reversing), but I still think it merits weight. A rough estimate (based on today's action so far is that the 10 day exponential moving average is around 34.50. Cherney is chief market analyst for Standard & Poor's