A Favorable Signal for Stocks

When the S&P 500 rises 10% or more in a quarter, it has posted an additional gain in the following quarter 81% of the time. It's up 15% this quarter

By Paul Cherney

All of the following comments are based on S&P 500 quarterly data back to September, 1957. There were 183 quarters in the study.

Monday is the last trading day of the quarter. I calculated gains and losses for the very last trading days of the past 183 quarters. Only 27 out of 183 showed a close with a loss or a gain of more than 1.00% for the day (that's about 15% of the time).

The S&P 500 is up about 15% for the quarter (with just one trading day left to go). I filtered for quarters which had a 10.0% or greater advance at the end of each quarter. There were 21 quarters that met this filter. I then filtered for the performance in the S&P 500 in the quarter following quarters which finished with 10% or greater gains. Seventeen of those 21 quarters were followed by another quarter of gains, so 81% of the time, the S&P 500 managed to post an additional gain in the following quarter.

The four losing quarters which followed a quarter of 10.0%+ gains were the quarters ending 6/30/61 (down 0.65%), 9/30/75 (down 11.89%), 6/28/91 (down 1.08%), and 3/28/02 (down 0.06%).

The average of all gains plus losses in the quarters following 10% gaining quarters was a gain of 4.14%. With money market funds yielding under 1.0% for an entire year, this average of 4.14% for a quarter of a year is a compelling case for many to shift some assets back into equities.

Resistance: The S&P 500 has immediate intraday resistance at 984-995 and 993-1003, which makes 993-995 an especially thick area of resistance. Next resistance is 1010-1015.12. The bigger picture of resistance, which was established by price action in June, 2002, is that the S&P 500 has a band of resistance at 1008-1041 with a focus of 1020-1031.

The Nasdaq has immediate intraday resistance at 1641-1660.47 and 1658-1669, which makes the 1658-1660.47 area especially strong resistance.

Support: The Nasdaq has support at 1620-1610 then 1603-1584.

Immediate intraday support for the S&P 500 is 982-972. There is a broad band of support at 973-947.

Longer-term support for the S&P 500 is 948-927; for the Nasdaq, 1558-1478.

If the short-term, intraday supports start breaking, a price trip back to these longer-term supports is likely.

Cherney is chief market analyst for Standard & Poor's

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