Setting the Stage for More Gains?

If the major indexes can move past some considerable resistance levels, it could mark the beginning of a bullish move higher

By Paul Cherney

I don't think that the headlines we have seen so far are enough to propel the indexes past the resistance levels mentioned below, but when prices do exceed these levels, that will convert them from resistance into immediate support and could mark the beginning of a bullish move higher.

These resistance levels are considerable -- they were established at two different times, the end of January and then the middle of February (which acted as a confirmation of the strength of these levels). Those resistance levels are 835-853 for the S&P 500 and 1331-1363 for the Nasdaq.

The markets (me, too) expect to see prices move higher once there is something concrete in terms of the Iraq situation.

No two times in history are ever exactly the same, but here is a refresher about the price performance in the S&P 500 after the beginning of Desert Storm in 1991. On the first trading day, the S&P 500 started higher and gained 16.6% in 18 trading days. It traded sideways with a positive bias for another 45 trade days and managed to gain another 6% over those 45 trade days. The grand total of gains seen from the first day of the war to the April 17, 1991, close was about 23%.

Anything is possible. Intermediate term market observers might be waiting for the indexes to clear the resistance levels mentioned above to prove that price can move higher before they commit funds.

Here are some of the differences between today and 1991:

In January of 1991, the U.S. 10-year bond yield was just 8.04% on Jan 17 and the trailing p-e ratio for the S&P 500 was 15.47 as of the 1990 fourth quarter. In 1991, the U.S. stock markets had suffered a brief three-month bear market lasting from July to October.

Today, the 10-year yield is 3.71% and the trailing p-e ratio for the S&P 500 is 28.72 (with 98% of the companies having reported for the fourt quarter of 2002). And the markets have suffered through a three-year bear market (which might have knocked some people out of markets for good.)

No two times in history are exactly the same.

Cherney is chief market analyst for Standard & Poor's

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