Late Monday afternoon, overbought signals were generated in charts based on Nasdaq 60-minute bars and on S&P 500 60-minute bars. This is a setup for the potential for some sort of a retracement in prices on Tuesday, but the retracement might only be intraday.
If it forms, this intraday pattern could give early warning of some intraday weakness and perhaps lower closes: an opening lift in prices which cannot maintain levels above opening prints. If the indexes move higher at the open but then retrace and undercut their opening prints by the end of the first hour of trading, this would increase the chances for some retracement.
If there is going to be some downside, something more than just an intraday retracement, then the CBOE volatility index, or VXO, which measures implied volatility in OEX options contracts, is going to have to move above its 10-day exponential
moving average. Very near the close of trading on Monday, Jan. 26, the 10-day exponential moving average of the VXO was 15.16. I don't think there can be even a small retracement in stock prices if the VXO does not move above this level (15.16). There are other measures of the VXO number which might offer some guidance: if the VXO is printing between 14.44 and 14.87, assume sideways trading action.
Immediate S&P 500
resistance is 1,151-1,176. It does not seem likely that prices can simply glide through this level on their first attempt and this looks like a likely stumbling block for the current upleg, but without some headline to create an element of uncertainty for the markets, it is not worth it to try to call even a short-term top or point of consolidation. I don't predict headlines but an example of a headline which might be able to create a one day drop (i.e., have a short-term impact on the market): Say Federal Reserve policymakers eliminate the "considerable period" phrase -- which refers to their timeframe for policy accomodation -- from their rate comment at the conclusion of their meeting on Wednesday, Jan. 28.
Immediate Nasdaq resistance runs from current levels to 2,181.
Anytime resistance levels are exceeded, they convert to
support until proven otherwise.
Immediate Nasdaq support is 2,150-2,144.
Immediate S&P 500 support is 1,150-1,143.
Additional Nasdaq supports are 2,105-2,077, 2,121-2,105, then 2,101-2,084 and 2,089-2,077.
The chart for the S&P 500 shows good support at 1,138-1,133 and 1,131-1,115. Cherney is chief market analyst for Standard & Poor's