By Paul Cherney If it works, don't fix it. Expect closing gains on Monday for the S&P 500 as per the historical study of price performance on the first two trading days of a new year following a fourth quarter with a 10%-plus gain for the S&P 500.
Wednesday was the end of a quarter and the end of a year. Since September, 1958, there have been seven S&P 500 quarters which saw the index gain 10% or more during the last quarter of the year. The S&P 500 lost ground on Friday, but that was the historically favored occurrence, so expect gains on Monday. The S&P 500 has posted closing gains six out of seven times (86% of the time) on the second trading day of new year when the fourth quarter has posted a gain of 10% or more.
The good gains of the fourth quarter might have used up some of the buying demand for the first quarter of 2004. Back in the June quarter of 2003, when the S&P 500 gained 14.9%, I looked back at previous quarters of 10% or greater gains. Some 80% of the time, a quarter following a 10%-plus quarter saw gains, but the average gain was not very big. If you averaged all the performances for the quarters following a quarter of 10%-plus gains, the average is a gain of 4.05%.
support for the S&P 500 is 1,106-1,100, the broad support is 1,106-1,068 and 1,083-1,053, which makes a focus of support 1,083-1,068. Price support thickens with prints of 1,096 and lower.
resistance for the S&P 500 is 1,116-1,133, then 1,151-1,176.
Immediate support for the Nasdaq is 2,001-1,986, then 1,974-1,960.
Immediate intraday resistance for the Nasdaq is 2,006-2,011. The next layer of resistance for the Nasdaq is 2,026-2,105. Resistance thickens with prints of 2038 and higher.
On average, after a 10% gaining quarter (S&P 500; forget about whether it was the beginning of new year or not), closing gains occur 81% of the time on the second and third trading days of the following quarter. Monday is the second day of the following quarter and Tuesday is the third day.
There is virtually no competition for an investment dollar. Downside is limited, but after the earnings reports for the fourth quarter, the upside might be limited, too, as the markets digest some of the gains of the past 15 months. Cherney is chief market analyst for Standard & Poor's