Thursday Was a Non-Event

There is not much we can add to the posts of the past two days. Neither Thursday’s 1.0% rally by the S&P nor the fact that 19 of the 24 industry groups gained ground did much to heal the damage of the past two days. Indeed, the point and figure Sector Sum indicator for the S&P 1500 Supercomposite recorded a “sell signal” on Thursday.

That point and figure development joined the weak near term momentum condition that we have highlighted. As suggested yesterday, a single reversal could be ignored, but a number of signals taken together suggest that the March-May rally is in trouble.

All of those problems are mitigated – at least for now – by the fact that support at 880-879 has not been violated and intermediate momentum still has a bullish bias for 23 of the 24 industry groups. So a case can still be made that the weakness of recent days is a correction within the rally from the March low rather than a reversal of that rally.

Our concern is that, even if the market does regain its footing and mount another challenge of 930 and higher, the recent damage may have been enough to meet such a rally with important negative divergences. This condition, plus the corrective Elliott Wave structure of the rally, does not bode well for a sustainable rally from current levels. Moreover, the new near term momentum pressures have the potential to remain in place through May, which suggests that the rally from at least the April 21 “line of demarcation” will be reversed. Lower lows, therefore, will increase the odds that this is a reversal.

For now, 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. While a violation of that range would also make us more alert to the possibility that the post-March rally itself was in trouble, we may need to see a breach of 783 to confirm that larger reversal.
Beyond last week’s 929-930 rally high, next chart resistance is our 944 benchmark. Next Fibonacci resistance is the aforementioned 955-956 area.