Downside Appears Limited

Any move above resistance levels will probably probably ahead of Friday's release of the March employment report

By Paul Cherney

Downside appears limited for the next few trading days, and end-of-the-quarter window dressing should keep a floor under prices.

If there are moves into the next layers of short-term resistance, the advance would probably stop because Friday, Apr. 2, brings the March employment report. After the recent record of weak nonfarm payroll numbers, it does not seem likely that there will be a headlong rush to the long side in anticipation of impressive numbers (something more than 120,000).

If the nonfarm payrolls number on Friday impresses positively, that will probably determine the course for equity prices for up to 10 trade days. If the number disappoints, downside still looks limited but indigestion might keep sellers in control for three to five trading days.

Intermediate-term indicators have not improved enough to suggest that a retest of a recent lows can be ruled out, but the price action on Monday, Mar. 29, was a minor positive.

The S&P 500 is testing immediate resistance running from 1,113-1,125.76. While there are layers of resistance, including 1,129-1,133, the next layer of well defined resistance is not until 1,135-1,149, with a focus at 1,138-1,146.65. A test of this area would probably bring sellers to cap gains. It will probably take an improvement in the nonfarm payrolls number to force prices higher.

Immediate Nasdaq resistance becomes thick at 2,011-2,064; a move into this area would probably attract sellers.

Wednesday, Mar. 31, is the end of the first quarter of 2004. This quarter is a quarter following a quarter when the S&P 500 had gained 10% or more; historically (S&P 500 since 1959), odds are about 8 in 10 that there should be gains for the current quarter, with the average gain in such cases about 4%. I do not think that a 4% gain for the quarter will unfold that would mean an end of the quarter close for the S&P 500 of 1156.40, but, at 8 in 10 odds (historically) of an S&P 500 gain for this quarter, odds are stacked to favor an S&P 500 close above the Dec. 31, 2003, close of 1,111.92.

The following price levels carry some short-term significance because if they are undercut for more than 4 minutes intraday, without attracting buyers, I would interpret that as a sign that part of the buying fuel which forced prices higher has converted to profit-taking. These are the important immediate intraday support levels: S&P 500, 1,114.06-1,111.75; Nasdaq, 1,980-1,975.43.

Cherney is chief market analyst for Standard & Poor's

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