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By Paul Cherney On Wednesday, Aug. 3, the drop in oil prices turned the day around for equities. Additional price weakness in oil should be a positive for stocks, but Thursday is the day before Friday's monthly employment report and stock prices might spend a lot of time moving sideways without demonstrating the ability to trend in either direction.
The one-day chart pattern for Wednesday was bullish. Prices dipped and attracted buyers not sellers.
Short-term concerns about additional downside for the S&P 500 still would increase with a close below 1,095, but the 50% retracement of the July 26 low to the July 30 high is 1,091 and if there is a close under that level, then the odds start to increase for additional S&P 500 weakness.
The Nasdaq has once again recovered from a test of the recent lows. The intraday low for the Nasdaq on Wednesday was 1,842.20 at the upper edge of the focus of
support 1,842-1,832, well above the 1,829.06 low set on Monday July 26. Volume was healthy. Nasdaq support under 1,829.06 starts at 1,815-1,792.
Both the S&P 500 and the Nasdaq have potentially positive ABC patterns taking shape, but it would take a close above 1,108.60 for the S&P 500 and 1,896.31 for the Nasdaq to create the potential for the initiation of an upside move.
Immediate intraday support for the S&P 500 is 1,097-1,092.58. Supports are stacked: 1,090-1,078 with a focus of support 1,086-1,082.
Immediate resistance for the S&P 500 is 1,103-1,109.30, 1,114-1,119.60, stacked and overlapped at 1,118.56-1,122.37.
resistance for the Nasdaq is 1,874-1,880.81, then a small shelf 1,886-1,896.31. Well-defined resistance does not come until 1,903-1,933 with a focus 1,909-1,918.
The CBOE volatility index, or VXO, has been trading sideways. I would consider VXO prints below Wednesday's low of 15.17 to be bullish. I would consider VXO prints above 16.08 to be a negative for the markets. Close to the end of Wednesday's session, the 10 day exponential moving average of the VXO was 15.50.
It is difficult to speculate that the current market action will represent a low that launches an uptrend that lasts for more than a couple of days because I do not have the uniformity of oversold readings (intermediate term readings) that were present at the May and March lows. Markets like this are in the realm of the intraday trader.
Any time resistances are exceeded they must be treated as supports until proven otherwise. Any time supports are undercut they must be treated as resistance until proven otherwise. Cherney is chief market analyst for Standard & Poor's