No Changes as Holiday Week Winds Down

Our monthly April Insights has been released. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.

Wednesday was a recovery day. The S&P bounced back nicely from Tuesday’s “nasty” performance with a 1.2% rally on solid breadth (four gainers for every loser). Nine of the 10 sectors were higher; telecom was the exception.

Not surprisingly, nothing has changed – and change does not appear imminent for the remainder of this week. The basic uptrend from the March low remains intact even as near term momentum is weak and has the potential to remain so for most of the rest of the month. Volume has fallen off; average daily volume was 6.3 billion shares last week, versus 5.3 billion so far this week. Thursday is likely to be a slow day and the market is closed on Friday, so the status is likely to remain quo.

We have made the case that the Elliott Wave pattern from the March low is more corrective than not. Now, it is increasingly clear that the decline from the April 2 peak is also counter-trend. This is viewed favorably since non-Elliott indicators, such as intermediate momentum, are constructive (and improving). Thus, it is important to reiterate our observation that the post-March rally has already reversed the decline from the January high. In turn, this implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. Most importantly, a rally through that level would indicate that the entire decline from the bull market peak had been reversed.

In sum, we remain of the opinion that, even though this may ultimately prove to be a bear market rally, it still has the potential to be the best rally since the 2007 peak.

Nearby support is at 815-817, but it will take a decline through 779 to confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Further weakness toward 777-735 would be likely.