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Positive Trend in Place

By Paul Cherney Paul Cherney was out of the office Monday, June 2. His column will resume Tuesday, June 3.

On Monday, June 2, the ISM report for May is due. Since the Chicago PMI report on Friday was better than expected (which helped bolster bullish expectations for the U.S. economy), this could be an omen for the ISM, which reflects the overall U.S. manufacturing picture. The report is due at 10:00 a.m. ET.

Some short-term indicators for both the S&P 500 and the Nasdaq are at overbought levels, but downside risk is probably limited. It is obvious on the charts that there is a positive trend in place. Upside ahead of the earnings warning season might start to become a struggle, but downside is limited.

Since 1988, when the percentage of "bearish" investment advisers in Investor's Intelligence weekly poll has been below 25.1%, the S&P 500 tends to travel sideways in roughly a 6%-7% trading band. The bearish camp remains under 25.1% (the current figure is 22.0%), but in 1991, just after the first Gulf War, there was a huge outlier in the series of upside performances. That year, the S&P 500 managed a 6.12% advance for the S&P 500 which for this market would equate to a close of 986.33.

It is not really a matter of "will" the S&P 500 break above and close above the August, 2002, high of 965.00, it is only a question of "when."


support for the Nasdaq is 1580-1568, then 1553-1526. Supports are stacked: the next support is 1519.00-1489. There is still considerable short interest in the Nasdaq and when that contingency of bears starts moving to cover, it will be a violent up day or two.

The S&P 500 has a layer of support at 948-935.

Immediate S&P 500

resistance is 951-965.00. S&P 500 965.00 represents the high established Aug. 22, 2002. In the Friday, May 30, session, the S&P 500 printed above 965.00 and then prices retraced and come back underneath 965.00, perfectly natural. This is still positive price action.

The Nasdaq has resistance at 1609-1760, with the first focus of resistance 1627-1658. Cherney is chief market analyst for Standard & Poor's

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