Odds Favor More Gains Tuesday

Longer-term measures remain positive, which suggest only limited downside

By Paul Cherney

The historical odds for quarters following 10% gaining quarters favor another day of closing gains tomorrow.

If there is a small price range on the day, or if there is a small net change on the day then a day or a day and a half of profit-taking would be natural. Longer-term measures remain positive, which suggest only limited downside.

Wednesday was the end of a quarter and the end of a year. Since September, 1958, there have been seven S&P 500 quarters which saw the index gain 10% or more during the last quarter of the year.

The good gains of the fourth quarter might have used up some of the buying demand for the first quarter of 2004. Back in the June quarter of 2003, when the S&P 500 gained 14.9%, I looked back at previous quarters of 10% or greater gains. Some 80% of the time, a quarter following a 10%-plus quarter saw gains, but the average gain was not very big. If you averaged all the performances for the quarters following a quarter of 10%-plus gains, the average is a gain of 4.05%.

Immediate intraday support for the S&P 500 is 1,118.48-1,113.69, then 1,106-1,100, the broad support is 1,106-1,068 and 1,083-1,053, which makes a focus of support 1,083-1,068. Price support thickens with prints of 1,096 and lower. If prices were to spend more than four minutes below 1,113 without attracting buyers, then downside risk would open for prints 1,109 and lower.

Immediate resistance for the S&P 500 is 1,116-1,133, then 1,151-1,176.

Immediate support for the Nasdaq is 2,037-2,027, then 2,022-2,010. Considerable support exists at 2,001-1,986, then 1,974-1,960.

Immediate resistance for the Nasdaq is 2,026-2,105. Resistance thickens with prints of 2,038 to 2,060 and prints above 2,058 will probably start to attract some profit-takers unless there is a headline of undeniably bullish importance.

There is virtually no competition for an investment dollar. Downside appears limited, but after the earnings reports for the fourth quarter, the upside might be limited, too, as the markets digest some of the gains of the past 15 months.

Cherney is chief market analyst for Standard & Poor's

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