The simplest way I describe the technical studies at play right now is that there still is short-term downside closing risk. On average, that has tended to end as of the close either Friday or Monday. Then, there should be some strength and a positive bias over the following five or six trade days.
The following comment is directly from Wednesday's column: 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% (in this market that would equate to a close of 887.75, so that is the average downside risk). And on average, it occurred 3.7 trade days after the VIX's cross which for this market would be Friday or Monday.
The S&P 500 closed Thursday's market at 886.90, about the average for a closing loss; the lowest closes tend to happen 3.7 trade days after the signal (which occurred on Tuesday, 09/10/02) which means in terms of the average time from the signal date to the low close, we still have downside risk for Friday and Monday. The S&P 500 has already satisfied the average downside close, but on the average time-scale, there are still two more days of risk (on average).
In reviewing price performance in the first 10 trade days after a VIX cross under its 10-day exponential moving average, there is some 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, 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 -- 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 3 series of data with losses: they were -0.40%, -1.59%, and -3.45%.
The current market is a complex situation both technically and psychologically. I think in the short-run the downside risk appears limited versus the potential reward of higher prices sometime in the next 10 trade days.
Support: Immediate support for the S&P 500 is 890-875. Substantial support is 876-833, with a focus of support at 868-854.
Immediate support for the Nasdaq is 1280-1265.
Resistance: Immediate intraday resistance for the S&P 500 is 892-898, then 909-928, with a focus at 923-928.
Immediate resistance for the Nasdaq is 1288-1298, then 1319-1350.92, with a focus at 1346-1350.92. Cherney is chief market analyst for Standard & Poor's