Thank You Mr. Greenspan

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The surprise easing yesterday gave the market a much-needed boost. It worked sorta like rocket fuel, giving us the burst of energy required to propel the market higher.

How much higher is not necessarily important now. What's important is the market's next test on this rally. Just as the market had a successful test late last week on the downside, we will now measure its performance on the upside.

Testing on the upside is equally as important as the downside. Just as we scrutinize the number of stocks making new lows when the market breaks down, we scrutinize the number of stocks making new highs on the upside. Therefore, this number needs to expand.

Right now, as the

Dow

stands at 8300, it has surpassed its September high, continuing its outperformance. The first test we will watch for is if the

S&P 500

can keep pace with the Dow and surpass its September high, about 20 points higher than here. The next test we will focus on will be the number of stocks making new highs. Yesterday only 32 stocks made new highs. Not only should this number be expanding, it should exceed 94. That's the peak number of stocks that made new highs during September's rally.

Finally, the cumulative advance/decline line must rally and exceed its September high. That would require a net differential of about 3,800. This means that we would require about two more days with an a/d such as we witnessed yesterday. We need not do it in two days, but it gives you an idea of how far this indicator must rally to exceed its September highs. While this is not a difficult task, it will be quite a challenge unless the financial stocks continue their upside participation.

These three tests are key in determining the health of this current rally. If we can get the S&P to make a new high, we will have a small confirmation of the upside. But if we can also grow the number of new highs, that means that stocks are confirming the Dow's upward trend. If we pass these tests, it is likely that the lower end of the trading range will be lifted, making the next wave down less dramatic.

However, if we fail to get the S&P in gear, or the number of new highs does not expand, or the a/d line does not confirm the upside, it will be a negative divergence. That which will likely bring us right back down to the bottom of the trading range again.

Right now momentum is on our side; we are still oversold. In addition to this indicator, two other momentum and directional indicators are pointing up: the

McClellan Summation Index

and the

Net Differential

of new highs and new lows on a 10-day moving average. Therefore we've got time on our side. We can allow the market some leeway to get these indicators in gear on the upside.

In terms of individual stocks, many stocks have resistance several points higher and are likely to run into some sellers at those levels. Here is a select list of stocks and their resistance levels.

American Express

(AXP) - Get Report

, mid-90s;

Citigroup

(CCI) - Get Report

, 40-44;

Coke

(KO) - Get Report

, 72;

General Electric

(GE) - Get Report

, mid-80s;

McDonald's

(MCD) - Get Report

, 68-70;

J.P. Morgan

(JPM) - Get Report

, 96-100;

Wal-Mart

(WMT) - Get Report

, 60-62;

Chase

(CMB)

, low 50s;

Colgate

(CL) - Get Report

, mid-80s;

Delta

(DAL) - Get Report

, par;

Fannie Mae

(FNM)

, 68-70; and

Gap Stores

(GPS) - Get Report

, right here.

In addition, many of the names that have been on my positive list lately have rallied quite well while the market was down but have not participated in this upsurge. These stocks need a rest and will likely be buyable on dips. They include

Philip Morris

(MO) - Get Report

,

Abbott Labs

(ABT) - Get Report

,

Sara Lee

(SLE)

and

Budweiser

(BUD) - Get Report

.

The increasing list of positive charts includes:

Alcoa

(AA) - Get Report

on this dip,

AT&T

(T) - Get Report

,

Chevron

(CHV)

,

Exxon

(XON) - Get Report

,

IBM

(IBM) - Get Report

,

International Paper

(IP) - Get Report

,

Johnson & Johnson

(JNJ) - Get Report

still,

3M

(MMM) - Get Report

,

Kimberly-Clark

(KMB) - Get Report

on a dip,

Texaco

(TX) - Get Report

,

Amgen

(AMGN) - Get Report

and

Intel

(INTC) - Get Report

.

And finally, a word about

Kodak

(EK)

. The steep slide did not damage the long-term chart or the base but did take the stock down sharply enough that the daily chart is spoiled. It will take some time to repair this damage. A sideways move as a form of consolidation would elongate the base and digest most of the selling. For now, call it neutral.

We will let the market run its course. It's not yet overbought therefore we expect the momentum to continue on the upside, perhaps eating a bit further into resistance than we had previously expected and expanding the upper end of the trading range. It is too soon to judge the quality of this particular rally, and therefore still too soon to sell.

Helene Meisler, based in Singapore, writes a technical analysis column on the U.S. equity markets for TheStreet.com

Tuesdays and Fridays. At the time of publication she was long Amgen and AT&T, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Meisler trained at several Wall Street firms, including

Goldman Sachs

and

Cowen

, and has worked with the equity trading department at

Cargill

. She appreciates your feedback at

KPMHSM@aol.com.