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By Paul Cherney Right now, on a short-term basis, there is a balance between buyers and sellers and prices can move in either direction. I think this is the trading range I have anticipated for a couple of weeks; I am just not sure as to whether or not we have seen the lower edge of the trading range.
Historical studies suggest that prices at the end of the year will probably be higher than they are now, but for the next couple of trading days, prices might meander sideways establishing a base.
Based on S&P 500 data from 1986 to 2003, there is a strong seasonal pattern apparent after the Friday of February expiration. On average, prices have tended to bottom on the fourth trading day after February expiration. For this year, that fourth trading day would equate to Thursday, Feb. 26.
Will history repeat itself? History never repeats exactly. But, technical measures are now losing their downside momentum. Right now, S&P 500 end-of-day momentum measures are at levels which often precede a bounce in prices, so a rebound really could happen any day.
resistances are 2,005-2,014 for the Nasdaq and 1,139.71-1,143.25 for the S&P 500. Once resistances are exceeded they should be viewed as support until they are broken.
support is 2,007-1,970; there is a focus of support at 2,001-1,996. Next support overlaps at 1,980-1,959. Prints 1,982-1,970 look like a likely spot for bulls to dig in their heels.
I think it would be better to see a Nasdaq price decline with a spike in volume to signify that fence-sitters are throwing in the towel. By "fence-sitters" I mean people who want to sell but are only waiting for a nice rebound to exit positions at prices much better than the recent lows. There was a prime example of this on Tuesday, when prices rebounded in the morning, but the higher prices only attracted sellers, not buyers. I can't dictate to the markets and explain that I would like to see volume spike on a decline to bolster confidence that some sort of a tradeable bounce is likely.
The markets are going to do whatever they want. But, if fence-sitters lose patience waiting for a rebound and then just start selling, and prices for the Nasdaq managed to print 1,982 or lower, that would represent a mini-capitulation. A capitulation like that usually requires a negative headline which forces the fence-sitters into the sell-side of the pasture, but that process, their selling, eliminates potential sellers hovering above current prices and stocks can enjoy a rebound which lasts more than a day.
Immediate support for the S&P 500 is 1,148-1,136.66. The index has printed below 1,136.66 for more than four minutes and that has opened downside risk for prints S&P 500 1,129-1,124.
Nasdaq immediate chart resistance is 2,005-2,014, then 2,026-2,051, overlapping at 2,049-2,062.48 then 2,072-2,094.92. This resistance actually goes all the way to 2,102; there is a focus of resistance 2,072-2,091. Next resistance above 2,102 is 2,108-2,153.83.
Chart resistance for the S&P 500 is a small shelf at 1,144-1,149. Resistance is stacked at 1,149-1,176.97, with a layer of resistance at 1,155-1,158.89. Cherney is chief market analyst for Standard & Poor's