Securities Research Services

Thursday, May 05, 2005

This Rally is Gaining Momentum

In the after market report we focused on resistance levels that market indices are returning to. It is important to pay attention to these levels. However, a balance must be struck in our analysis at this juncture between overhead resistance and current momentum. Volume levels were not spectacular in yesterday’s market rally, but they were not so poor that we should automatically assume there was no institutional participation. Our scans today revealed that in fact there was a large degree of participation in yesterday’s rally and evidence that money is starting to come off the sidelines at these levels. Last week we outlined overhead resistance on both the NASDAQ and S&P 500. Now the indices are making a run at these resistance levels and they are building some good momentum along the way. As stocks run headlong into these walls of resistance we will soon discover whether the walls are made of paper or brick. In the meantime it makes sense to test the water here and jump in while momentum is gaining speed. If stocks get hung up at overhead resistance at least we will have a cushion of profit to withstand the rejection.

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