Markets & Finance

Positive Conditions in Place


The 10-day exponential moving average of the VIX (market volatility index) finished Monday's session at 38.36. The VIX itself finished Monday's session at 38.40. Technically, the VIX did not cross under its 10-day exponential moving average in Monday's session, but it did in Tuesday's session. This has longer term positive implications -- after three months (on the 66th trade day) the S&P 500 has been higher every single time.

In reviewing price performance in the first 10 trade days after a crossing lower, there is also short-term downside risk. In the 15 occurrences since 1986, only three of those crosses lower saw the S&P 500 just take off like a rocket without closing lower than it was on the day the VIX crossed below its 10-day exponential, so that means that in the first 10 trade days after the VIX crosses down through its 10 day exponential, that the odds are about eight in 10 that there will be closes which undercut the close on the day of the cross (8 in 10 odds of an S&P 500 close under Tuesday's (Sept. 10) close.

The worst closing performances tend to happen in the first few trade days after the cross. By the 10th trade day after the cross, the S&P 500 has had closing gains 12 out of 15 times, or 80% of the time. Eight in 10 odds are the kinds of odds you want to take, not give. The biggest gain as of the 10th trade day after the cross has been +10.05%; the smallest gain has been +0.50%. When measuring prices from the close of the cross to the close of the 10th trade day out, there have been three series of data with losses; they were -0.40%, -1.59%, and -3.45%.

Wednesday will be the first day of trading after the VIX makes its cross. Odds are nine in 15 (60% of the time) that there are closing gains. Historical odds are 10 in 15 (67% of the time) favoring a gain on the second day after the cross, which would be Thursday.

If you look at closing prices inside the 10 trade days following the cross, the average down close for the S&P 500 was a loss of 2.4% (from what would be Tuesday's close) and on average, it occurred 3.7 trade days after the VIX's cross, which for this market would be Friday or Monday. I think the markets are going to head higher unless there is an adverse headline over the next couple of days.

The current market is a complex situation both technically and psychologically. In addition to the apprehension about potential terrorist activity on Wednesday, there are currently three different studies I have been citing which carry high odds of probability. I happened to have focused on the VIX study today, because I think it represents the best assessment of the technical conditions, but the studies outlined in previous end of day comments also remain valid. Any study, even one with a 100% correct track record, can be wrong. Anything can happen at anytime. All I do here is offer the historical odds based on technical measures.

Support: Immediate support for the S&P 500 is 898-889, and 890-875. Substantial support is 876-833, with a focus of support at 868-854.

Immediate support for the Nasdaq is 1303-1294, then 1280-1265.

Resistance: Immediate intraday resistance for the S&P 500 is 909-928, with a focus at 915-923.

Immediate resistance for the Nasdaq is 1319-1346.


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