Ho Hum (Plus the US$)

On Monday, the S&P 500 recorded its third setback in four days. However, while breadth was negative, the up/down volume ratio was positive for the eighth day in a row (and for 13th time in the last 14 days). Nonetheless, it was something of a “ho-hum” day as both the S&P and the DJIA recorded an inside day (a higher low and lower high than those seen on Friday).

Neither the daily nor the weekly chart has much definition to it from the July 8 low – they are simply a continuous pattern of higher highs and higher lows. This is elementary evidence that the 4-5 week long rally is still intact. However, we can make the case that the hourly chart is now in its seventh wave up from that same July low. That is a corrective number of waves. While this suggests that the rally is running into difficulty, we need to allow for the possibility that the fifth wave itself is subdividing into five lpwer degree waves of its own. However, even if that is the case, both near and medium term momentum have a bearish bias, suggesting that that any further upside over the near term will be laborious. An accelerating rally appears unlikely.

With all of this in mind, we are raising first (or trading)support from 969.65 to 990.22. A violation of that latter level would be the first lower low since July 8 and do much to lock in the rally from the July 8 low as a complete pattern. That said, the July low itself at 869 is still viewed as tactical support.

Meanwhile, the door remains open for a still deeper probe of chart and Fibonacci resistance in the 1007-1048 range.

Now let’s turn to another subject – the dollar. In our recent monthly we suggested that a rally through 79.66 – and especially through 81.47 – would effectively confirm that the decline from the March highs had been reversed. In turn, this would imply that the dollar index could be on the verge of its best rally since the 15% gain from December 2008 to March 2009 (and perhaps since the 24% rally from the July 2008 low). On Monday the dollar “only” got to as high as 79.39, but near term momentum has turned up and the downtrend line from early July has been breached. A rally through resistance may only be a matter of time.