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A Pause Would Refresh


By Joseph Lisanti The S&P 500's recent strength has been encouraging. Far from being the "cruelest month," as T.S. Eliot called it, April not only showed strength, but also breadth.

While the 8.1% gain in the index was the best monthly percentage increase since last fall, the 442 stocks that rose during April represented the highest monthly number since well before the "500" peaked in March, 2000. What's more, nine of the 10 broad sectors that form the index rose. The sole exception, energy stocks, eased only 0.5%. On an industry level, 95 of the 103 groups in the index moved up in April.

For the first four months of 2003, 317 issues in the index rose in price, a stronger showing than in any full year since 1997. Investors with fond memories of a rising stock market may recall that in that year, the S&P 500 rose 31%.

We don't expect that kind of gain this year. In fact, the recent strong price action -- the "500" has risen about 12% since mid-March -- could mean that we are due for a pause in the advance. Mark Arbeter, S&P's chief technical analyst, notes that the S&P 500 is running into resistance, the point on the chart where traders are likely to sell. He sees critical chart resistance at 963, roughly the high point of a 10-month trading range that stocks reached late last August. Close to that is the bear market trendline, drawn from the peaks of the last few years. That comes in at 960.

Arbeter believes that a positive scenario would see a consolidation of recent gains at the 875 to 900 area. But he still views any move up as a rally in a bear market until we see a drive beyond the 965 level on heavy volume.

Although the backing and filling can be disconcerting, we advise investors to keep 65% of assets in equities. Lisanti is editor of Standard & Poor's weekly investing newsletter, The Outlook


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