By Paul Cherney
These markets are starting to look as if they want to go up. A positive bias to prices is likely for Wednesday, Mar. 31, but Thursday will probably be flat in anticipation of Friday's nonfarm payroll number. The markets appear ripe for a run higher, but it will take a nonfarm payrolls number of at least 120,000 -- preferably 150,000 or higher -- to ignite buying and short-covering.
Downside appears limited for the next two trading days, and end-of-the-quarter window dressing, as fund managers realign their portfolios, should keep a floor under prices on Wednesday.
If there are moves into the next layers of short-term resistance, the advance would probably stop because Friday brings the March employment report and Thursday can easily see caution ahead of the report. If the payrolls number on Friday impresses positively, that will probably determine the course for equity prices for up to 10 trading days. If the number disappoints, downside still looks limited but indigestion might keep sellers in control for three to five trading days.
Intermediate term indicators have improved enough to suggest that a retest of a recent lows is only a 50/50 shot.
The S&P 500 has managed a close above former immediate resistance, which was 1,113-1,125.76; that level is now support. There are layers of resistance, including 1,129-1,133, but the next layer of well defined resistance is not until 1,135-1,149, with a focus at 1,138-1,146.65. A test of this area would probably bring sellers to cap gains.
Immediate Nasdaq resistance becomes thick at 2,011-2,064; a move into this area would probably attract sellers to cap gains.
Wednesday, Mar. 31, is the end of the first quarter of 2004. This quarter is one that follows a quarter when the S&P 500 had gained 10% or more. Historically (S&P 500 since 1959), odds are about 8 in 10 that there should be gains for the current quarter, the average gain is about 4%. I do not think that a 4% gain for the quarter will unfold -- that would mean an end of the quarter close for the S&P 500 of 1,156.40 -- but, at 8 in 10 odds (historically) of an S&P 500 gain for this quarter, odds are stacked to favor an S&P 500 close above Dec. 31, 2003's close of 1,111.92.
The following price levels carry some short-term significance because if they are undercut for more than 4 minutes intraday, without attracting buyers, I would interpret that as a sign that part of the buying fuel which forced prices higher has converted to profit-taking. These are the important immediate intraday support levels: S&P 500, 1,114.06-1,111.75; Nasdaq, 1,980-1,975.43.
Cherney is chief market analyst for Standard & Poor's