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Short-Covering Rally Running out of Gas?

By Paul Cherney If a typical short-covering rally lasts one to four trade days,

Wednesday, Mar. 28, will represent the fourth day for the DJIA and the S&P 500 while Tuesday was the fourth day for the Nasdaq.

I have to assume that the short-term trend (positive) will remain the dominant theme until or unless some other technical condition enters the markets.

Here's what I'll be watching for (to help me get a handle

on whether we are really running to the end of the

short-term advance): a contraction in volume to 0.8 times

the 50 day moving average of volume while the price range

for the trading day also contracts (it dowesn't matter

whether the index finishes higher or lower on the day).

The smaller volume would mean that there are fewer people

coming to the party and the smaller range would represent uncertainty as few are willing to commit at higher and

higher levels.

For the Nasdaq, 0.8 times the 50 day moving average of

total trading volume is 1.66 billion. For the S&P 500

(using NYSE total trading volume), the number would be 960


The Nasdaq has broken above 1930-1770 band of support.

Immediate resistance (above 1975) is directly overhead in the 1987-2031 area and this is a likely spot for this

index to run into a profit-taking stall, but I don't

hesistate to include that technical measures based on end

of day data remain positive, that's why I will be paying

close attention to price and volume action. Immediate

support is 1966-1940.

The S&P 500 is at the upper edge of a band of resistance

which runs 1136-1190. 1150-1138 is immediate (intraday) support. On Tuesday, the S&P 500 closed at the upper edge

of a focus of resistance which is 1158-1182. The S&P 500

has a shelf of resistance 1196-1216. Major resistance

(likely to be impenetrable on a first assault) is


Note: I did have a signal trip as of the close on Thursday

(3/22/01) which historically has very high odds that the

current advance in the S&P 500 will ultimately rollover and

undercut the 1117.58 level on a closing basis. But I haven't seen the evidence that this advance has run out

momentum (which is in addition to the fact that the signal

could just be wrong). This signal usually sees the

undercut within 6 weeks. I also had another signal that

the oversold condition in the S&P 500 should garner close

to a 15 trade day advance so I am not thaqt anxious to try to call the top and a retracmeent which undercuts 1117

just yet. Cherney is Market Analyst for Standard & Poor's

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