A Solid Decline

Monday was arguably the most difficult day for the S&P 500 since April 20th. The index’s .2.2% decline was the largest since then and the 19 declining industry groups (out of 24) was the also the largest since then.

We have referred to the intra-day lows on April 21 as a line of demarcation in the sense that the rally since then was a second leg of the larger uptrend from the March 6 low. Monday’s weakness, plus the fact that the most recent rally from the May 8 low was arguably the first Elliott Wave three-wave (counter trend) rally since April, could be a sign that the April-May (and perhaps the larger March-May) rally is beginning to show signs of fatigue.

That said, no uptrend lines have been violated and momentum is constructive, Moreover, while the rally from the April 21 low is 50% of the initial March-April uptrend, it is still shy of the usual minimal 61.8% relationship (at 955-956).

With the above in mind, nearby support remains at 880-879; a violation of that range would effectively confirm that the rally from the April 21 reaction low had been reversed. A violation of that range would also make us more alert to the possibility that the post-March rally itself was in trouble. Unless and until that range is violated, the rally will continue to receive the benefit of the doubt.Beyond last week’s 929-930 rally high, next chart resistance is our 944 benchmark. Next Fibonacci resistance is the aforementioned 955-956 area.