Monday to traders: This rally still has legs

We are currently working on the monthly Insights. It should be released later this week. If you do not regularly receive our Insights, please e-mail us (wgmurphyjr@gmail.com) and we will correct the situation.

You know that a market move has staying power when economists claim that it is “only technical.” Be that as it may, Monday’s action increases the evidence that this rally really does have legs. The S&P 500 rallied 3.4% and all 24 S&P industry gained ground. As a result, our advance-decline line based on those groups has moved above its January high, as have the a-d lines for the S&P 500 itself, and the S&P 400 mid cap. They join the NYSE a-d line, which cracked its January high last week. The a-d lines for the S&P 600 small cap and S&P 1500 super composite indexes are just below their January benchmarks.

In addition to the a-d lines, a number of point and figure indicators have confirmed the rally, and near term momentum, which has been lagging, has finally turned up and is supporting the bullish intermediate oscillators. Finally, the rally has taken on an Elliott Wave impulsive look in recent days, which is in contrast to the counter trend characteristics that were evident in the early weeks of the rally.

All of this suggests that higher highs are likely in the days (and weeks) ahead. Inevitable pullbacks will be viewed with these confirming underpinnings in mind,

This implies that the rally from the April 21 low will have a Fibonacci relationship to the initial March-April rally. We have pointed to 897-919 as a resistance area, but 944 is our main focus since a rally through that benchmark will confirm a reversal of the entire 2007-2009 decline. In that regard, it is not a stretch to suggest that other resistance levels are relatively irrelevant. We believe that 944 will be violated.

Monday’s action suggests that nearby support should be raised to 885-875 and below. We are also raising key support to 848-847, from 830-825.