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Further Gains Still Likely

By Paul Cherney The line of least resistance should still be for higher prices for another 10 to 15 trade days. The momentum generated by the lift off the 4/4/01 bottom should still have some residual (positive) effects on prices.

Last Wednesday (4/4/01), the Fed effectively cut the Discount rate for the fourth time in a row. Historically (since 1960) downside risk hase been limited in the week of a fourth consecutive Discount Rate cut. The worst performance by either index (the S&P 500 or the Nasdaq/OTC in the first 250 trade days AFTER the fourth rate cut) was a 9.83% loss in the Nasdaq. If the index replicated that performance, that would mean that the worst closing loss for the index over the next year would be a close of 1875.03. The S&P's worst performance (-7.91%) would equate to a close of 1140.22.

After reviewing charts over the weekend and looking at the configurations of the various measures of price, volume, breadth, and activity at the CBOE, I think the worst case for the next 10 to 15 trade days would be a close of 1168 for the S&P 500 and a worst case close for the Nasdaq looks like 1869.

Immediate resistance for the Nasdaq is 2075-2090 then immediately stacked resistance is 2093-2111. The index has another layer of resistance 2143-2182.

Immediate Nasdaq support is now 2030-1995 the next substantial layer of support (based on the charts) which is in the 1962-1868 area. I cannot rule out a retracement in the Nasdaq which prints in the 1962-1868 area.

The S&P 500 finished Monday's session in a test of immediate support which is 1238-1223. The next layer of support is 1212-1202 then 1193-1158. The index has immediate resistance in the 1253-1273 area. Cherney is Market Analyst for Standard & Poor's

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