Monday's price action was positive. Historically, the second half of October has demonstrated an ability to strengthen (on balance) after a big losing third quarter (which these markets have experienced.)
Market reaction to the earnings reports will dictate prices, but even weaker prices should not last long, and are perfectly natural (see VIX paragraph item below).
If the TNX (ten year yield) starts printing at or above the 38.80 level, it might be difficult for stocks to maintain higher momentum. TNX 38.83 (a 10-year yield of 3.883%) would represent a stretch in terms of 10-year yields -- a big move in a short amount of time -- and if the TNX does print near 38.80, this looks like a natural spot for short-side bond traders to liquidate some equity positions to buy back bonds and close-out bond shorts at a profit.
The current state of my technical measures is not offering very high percentage odds for predictive price behavior. There is still a little potential for weakness and an S&P 500 close in the 810-795 area cannot be ruled out.
The VIX (market volatility index) does not move to the 50.00 area unless there is some degree of fear in the marketplace. I have looked at price action in the S&P 500 in the wake of a VIX intraday print above 50.00 and a close for the session below 50.00. This happened on Thursday, Oct. 10, one of 22 such occurrences since 1986, and only seven of those times saw prices just zoom higher (first 10 trade days) without having a close which undercut (closing basis) the close on the day of the event (VIX above 50 but close below 50). That means that the historic odds are almost 7 in 10 (68%) that the S&P 500 will have a close below 803.92 in the first 10 trade days after the signal. The S&P 500's close on Thursday, Oct. 10, was 803.92, when the VIX had an intraday high of 50.48 and a close under 50 of 46.29. Even after the July 24 signal (VIX above 50 intraday, but close below 50), the S&P 500 undercut the July 24 close on the 8th trade day after July 24 when the S&P 500 posted a close of 834.60, representing a loss of 1.05% from the July 24 close of 843.42. (From Aug. 5th to the Aug. 22 close, the S&P 500 gained 15.3% close to close.)
If the S&P 500 re-created the Aug. 5 closing loss based on the current market, the 1.05% closing loss would equate to a close of 795.48.
This is a bottoming process. The second half of October should be better than the beginning but there might be a little indigestion sometime in the next few trading days.
Most of the earnings warnings are probably out of the way and the markets might receive earnings reports which at least are simply meeting expectations (which would limit the downside). I still expect jagged trading and risks for sub 800 S&P 500 closes have not been eliminated.
October has a reputation for being a bear killer (meaning some big bear markets have ended in October), prices can push lower in the beginning of the month and then prices can rebound in the second half of the month and I think that is what is happening to these markets.
Support: Intraday S&P 500 support is 832-827.40, then 821.02-816.52. The S&P 500 has more substantial support at 806-779, with a focus 806-795.
Immediate Nasdaq support is 1203-1194. The index created a gap at 1179.90-1163.50 with Friday's opening and a migration back to at least print inside that gap might occur sometime over the next two weeks. The next support below the gap is 1153-1139.44, then 1144-1108, which makes the 1144-1139 area a focus.
Resistance: Immediate intraday resistance for the S&P 500 is 835-856.60, with a focus 842-852. This is the likely spot for the current lift in prices to meet selling pressure (as it did on Monday), but if prices can move above this level, and close above this level, this will be support. The next major resistance is 871-924, with a well defined wall at 881-890.
The Nasdaq closed Monday's session inside resistance: 1211-1239.62. There is a focus of resistance 1221-1227. Major resistance is 1266-1347, with a focus 1269-1297. Cherney is chief market analyst for Standard & Poor's