More Steam Ahead?

Tuesday's Fed rate cut bolstered buyers' confidence. But the road higher could be bumpy in spots

By Paul Cherney

I think the market's reaction to the "as-expected" 50-basis-point cut in the Fed funds target and discount rates bolstered buyers' confidence. There was nothing in Tuesday's market to cause me to change my expectations that the markets should try to work higher. This does not mean that every single day will be a gainer.

Unless there is a headline to rouse buying or selling, there is a good possibility that the markets might just move sideways, with limited downside, waiting for a development in the war on terrorism.

I think it is very realistic to expect that the DJIA will come within 2% of its close before the World Trade Center tragedy. That would mean that I expect to see the DJIA close at 9400 or higher in the next 14 to 19 trade days (if it follows similar patterns from 1933 and 1930).

The other major indexes should follow along. The NASDAQ has a brick wall of resistance in the 1480-1528.33 with a focus 1494-1514. The next resistance is 1545-1568. If the index manages to move above the 1528 level, then a move into the 1545-1568 layer of resistance would be natural (perhaps sometime this week, week ending Oct. 5).

The NASDAQ has immediate support 1483-1451. The next support is 1433-1418. The NASDAQ is the laggard right now. Money appears more interested in establishing long positions in non-tech stocks. Often, the true end to a bear market does not occur until everything that worked so well before is simply abandoned. Tuesday's market saw strength in traditional cyclicals like Boeing, Caterpillar and United Technologies.

The S&P 500 has solid support 1020-998, then, additional support is 986.25 - 926.85 and this level will hold again (if tested). The immediate (intraday) support is a thin shelf 1035-1026 (just above the more substantial support of 1020-998). The S&P 500 has brick-wall resistance beginning with prints of 1073-1131 with a focus 1092-1106.

The S&P 500 was at 1092.54 before the markets closed after the WTC tragedy. If the index moved to within 2% of that close, it would represent a close of 1070.69 or higher. As noted above, the brick wall of resistance is 1073-1131.

Paul Cherney is market analyst for Standard & Poor's

Before it's here, it's on the Bloomberg Terminal.