Another Up Day? Not Really.

On the surface, Thursday was another up day in April (there have been 11 of them so far). All three of the so-called major averages finished the day higher than they were on Wednesday.

Under the surface, however, there is a different story. While the S&P 500 was higher, both the S&P 400 mid-cap and S&P 600 small-cap indexes declined. Breadth was solidly negative for both the “400” and “600.” Moreover, even though total NYSE volume was lower than Wednesday’s level, almost 400 of the stocks in the S&P 1500 declined on higher turnover (versus only 250 that rallied on better volume). All of this suggests that the averages did a poor job of representing the deterioration that actually took place on Thursday.

Thus, our near term focus is still on the idea that the sharp decline into Monday’s low was part of a larger correction. From a momentum perspective, near term oscillators have the potential to remain weak into May. From an Elliott Wave point of view, the decline early in the week was probably the “A” wave of a larger ABC(DE) pattern, or even the first leg of a larger five-wave decline.

However, we also still believe that this near term correction is unfolding within the intermediate uptrend from the March low. Indeed, intermediate momentum is positioned to remain constructive into June, suggesting that the intermediate uptrend will withstand the pressures currently being exerted by the near term pullback. Thus, the decline earlier this week – as well as any follow-through – should prove to be an interruption to an unfinished bear market rally pattern.

Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.

The unweighted CCI commodity index closed at 372 and remains within its post-October trading range. We believe that the decline from last July’s highs will likely prove to be the first leg of a larger downtrend. Thus, once the trading range runs its course, a second downleg will likely be signaled. In that regard, 341-344 is potentially key support.

The long bond closed at 125:07. We continue to respect the idea that the December-February decline will prove to be the first leg of a larger decline. However, as long as the nearby contract holds above key trend and chart support in the 121-125 area, the potential does exist of an attempt to challenge 132-133 or higher.

The US Dollar index closed at 85.41. Chart and trend support is in the 82-84 area. Conversely, there is a good deal of resistance up to about 91-92. . Intermediate momentum is peaking for the index – and versus most of the currencies within the index. Thus, any upcoming breach of support would likely signal a broad-based decline.