More Upside Ahead for Stocks

There should be more gains -- but the size of those gains should start to get smaller

By Paul Cherney

Former resistance is now support. Support levels are 853-835 for the S&P 500 and 1363-1331 for the Nasdaq.

This is a special situation for the markets and there should be more gains, but the size of those gains should start to get smaller.

Today, the NYSE Up volume/(Up Volume + Down Volume) was roughly 93%.

I looked at the trade days which followed such lopsidedly bullish trade days, all the way back to 1970, and the chances of the S&P 500 closing with a gain on Tuesday have historically been about 6 in 10 (61% of the time). You have to figure that a lot of buying demand was used in the lopsided session on Monday.

I think it is likely that there is more to come on the upside over the next few days, but that does not mean that every day will be a gainer.

Resistance for the S&P 500 starts at 869.45 and starts to get pretty thick at 893-911, which looks like a real stumbling block.

Resistance for the Nasdaq is 1400-1467, with a focus of resistance at 1420-1454; it gets especially thick at 1433-1447.

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

Here are some of the differences between today and 1991:

In January, 1991, the U.S. 10-year bond yield was 8.04% on Jan. 17, and the trailing p-e ratio for the S&P 500 was just 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 2002 fourth quarter). 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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