These markets are going to have to prove themselves by demonstrating the ability to rise and exceed
resistance levels. Until then, patience is a virtue.
Near the end of Monday's session, Nasdaq 60-minute measures entered oversold zones. S&P 500 60-minute measures are very close to oversold.
This is the Week of the Triple Witch (quarterly expiration of futures and options) and one day can go one way and another day the other way.
It can happen. There are huge leveraged bets in place and a washout in the morning on Tuesday should force short-sided profit-taking (cause bears to buy to cover and probably close-out profitable long put positions).
I think I am going to get readings from NYSE breadth measures in the overnight systems run which will tilt the odds to favor that there should be lower closes sometime over the next 5 to 10 trading days even though there might be a small counter-trend move on Tuesday. A counter-trend move would probably be short-lived (no more than 1 to 4 trade days). The risk in trying to play a bounce is that there is no bounce and prices just continue lower until the S&P 500 has tested and/or closed in the 1,077-1,031 area of
support. I hope to see other signals in the overnight systems run which might offer a clearer set of odds for price action, but for now, that's my best take.
The markets are oversold short-term. A bounce tomorrow can occur; I expect a bounce tomorrow and positive closes, but at this time I do not think that the lift will be able to turn the markets around except for maybe 6 to 8 trading hours.
On Thursday last week, certain end-of-day measures of put volume and the total Put/Call ratio at the CBOE reached levels which heavily weight the odds to favor that there will have to be a close below Thursday's close for the S&P 500 of 1,106.78. That was satisfied in Monday's action. The price patterns after previously similar signals are too disparate to make assumptions about the price pattern for the current signal.
The broad picture of Nasdaq support is a band 2,001-1,783, established over the months of October, November and December. The index has well-defined support 1,994-1,925, then 1,907-1,878, and in viewing the 60-minute charts, I noticed a layer of support, which, if tested I would expect to see prices reverse for an oversold bounce for a layer of support at 1,928-1,906.
The S&P 500 has support at 1,110-1,091, with a focus at 1,097-1,091, then 1,082-1,053, with well organized support at 1,077-1,031.
Immediate resistance for the S&P 500 is 1,107-1,112.25, then 1,120.90-1,129.
The immediate resistance for the Nasdaq is 1,945-1,955.39, then 1,962-1,982.58, then 1,996-2,022.
On Thursday, Mar. 11, the S&P 500 closed below the "line of death" at 1,120.90, and this has technically opened downside risk for a test of the next layer of organized support on the daily charts, which is 1,077-1,031. There is no calendar or timetable for this potential downside target. Prices never move in straight lines and a move to test or close down in the support 1,077-1,031 might not unfold, but until I see technical evidence to sway my opinion, that is what I expect.
The dates for the days when the total CBOE P/C ratio was above 1.15 and the Total Put Volume divided by the previous day's 10 day moving average of total put volume was greater than 1.95 are/were: September 18, 2002, August 21, 1998, July 16, 1996, October 5, 1994, March 30 & 31, 1994, February 4, 1994, March 12, 1993, February 16, 1993, and December 2, 1987. I cannot really see a pattern, other than every single time this event has occurred in the past there was a close below the close on the day of the signal, and Monday's S&P 500 close of 1,104.43 technically satisfied this one technical kernel I was able to glean from the data.
There is additional data to support an S&P 500 probe lower which I hope to find time to present tomorrow. Cherney is chief market analyst for Standard & Poor's