Waterloo?

Editor’s Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

The S&P 500 rallied 2.3% on Thursday. This was its best performance since July 23 and broke a four-day losing streak. Both breadth and the up/down volume ratio were positive by an 8:1 margin. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

Though some analysts believe that the bears have met their “Waterloo,” it remains to be seen just how important today’s rally is in the overall scheme of things. We believe yesterday’s decline was more important.

Many attribute Thursday’s rally to the solid GDP numbers. But that ignores the fact that the stock market is a leading indicator. In fact, a case can be made that March’s low was in anticipation of today’s numbers. From that perspective, Thursday’s rally is merely reaction to an oversold condition that may well have happened even if there were no “news.”

S&P 500 with Daily Coppock Curve

Thus, we are inclined to consider the rally is normal. In fact, it can be considered a fourth wave in a larger five wave decline. In Elliott Wave, a fourth wave typically does not retrace much more than 50% of the previous third wave and often goes back to the previous fourth wave within the pror third wave. In this case, the first guideline suggests resistance in the 1069 area, and the second implies 1065-1071. Much beyond these levels, we would have to consider that this rally is more than a “normal” reaction.

Even if this rally proves to be stronger than we expect, the deterioration that is already evident, combined with overbought sentiment and a peaking 22-week cycle, suggests that the resulting divergences will indicate a more important top than the intermediate weakness that already exists.

Wednesday’s 1042 low is first support, and the October 2 low at 1020 is second support. But, as explained in yesterday’s post, there are two areas of support that could be of particular importance: 958-935 and 884-869. The first is both a 61.8 retracement of the July-October rally and a 38.2% retrace of the March-October uptrend. The second is a 50% retracement of the March-October uptrend and a full retrace of the July-October rally. Obviously, there are other levels (e.g., 1013 is a 38.2% retracement of the July-October rally) that we will use as guidelines, but those two are the most intriguing since they involve two different – and important – wave structures. They should prove to be our focus in the weeks ahead.

No Respect

Editor’s Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

The S&P 500 fell 2.0% on Wednesday. This was its fourth straight loss; it was also the seventh decline in nine day. The breadth ratio was negative by 14:1 but, since the up/down volume ratio was negative by “only” negative by less than 8:1, Wednesday was not a 9:1 day. Both daily and weekly Coppock Curves have a bearish bias for 23 of the 24 S&P industry groups.

The bottom line to Wednesday’s decline is that the S&P paid very little respect to 1061-1051 (a 50%-61.8% retrace of the rally from the October 2 low) and broke through the post-March uptrend line. This, plus the fact that many – if not most – intermediate indicators are still on the overbought side of neutral, implies that this correction is in its early stages.

S&P 500 with "intriguing" Support Bands

As a result, it is quite likely that 1020 will be violated. If so, that would fully confirm that the July-October rally is a complete pattern. That may be a moot point because the intensity of the decline, along with its apparent impulse qualities, is already solid evidence to that effect. Thus, while the rally pattern from the July low will remain intact as long as the index holds above 1020, it is probably prudent to apply Fibonacci relationships to at least the July-October rally, if not the entire March-October uptrend.

With that in mind, there are two areas of support that could be of particular importance: 958-935 and 884-869. The first is both a 61.8 retracement of the July-October rally and a 38.2% retrace of the March-October uptrend. The second is a 50% retracement of the March-October uptrend and a full retrace of the July-October rally. Obviously, there are other levels (e.g., 1013 is a 38.2% retracement of the July-October rally) that we will use as guidelines, but those two are the most intriguing since they involve two different – and important – wave structures.

Yesterday we suggested that while we could expect at least 50%-61.8% retrace of the S&P’s October rally (to test of 1061-1051), our focus will be on 1020. The index is already in the upper reaches of first support and, as this is written, the market is about to open and further weakness is indicated. On top of all of this, the S&P’s uptrend line from the March low is in the 1058 area.

The 1075-1078 breakdown point is regarded as First resistance. Beyond that, there is a significant amount of resistance at 1086-1095.

Pressures Building

Editor’s Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

In yesterday’s post we suggested that, given the underlying momentum, sentiment, and cycle background, the potential existed for a deeper – even full – retracement of October’s rally. To that array we can add the Bullish Percentage Index (BPI). In the glossary in our new website we describe the BPI as “a breadth/momentum indicator that is most commonly calculated by dividing the number of stocks that are trading on a Point and Figure (P&F) buy signal by the total number of stocks within the group being analyzed.” In that sense it is very much an unweighted measure of an index’s health.

BPI for the S&P 1500

The nearby chart is the BPI of the broad-based S&P 1500. So, it can be thought of as a measure of the market’s health. With that in mind, it should be noted that the BPI is breaking both its uptrend line from the March low and a support line that has contained a top formation that has been evident since July. This combination, plus the fact that we expect the BPI to carry to at least the 50%-30% area during a coming correction, suggests that the market may only be in the very early stages of a decline. Thus, this could – even should – be the most important pullback since June-July and perhaps since January-March.

Yesterday we suggested that while we could expect at least 50%-61.8% retrace of the S&P’s October rally (to test of 1061-1051), our focus will be on 1020. The index is already in the upper reaches of first support and, as this is written, the market is about to open and further weakness is indicated. On top of all of this, the S&P’s uptrend line from the March low is in the 1058 area.

Nonetheless, the rally pattern from the July low will remain intact as long as the index holds above 1020.

Yesterday we thought that this decline from the 1101 high appeared to be corrective. We are not so sure of that today. Even so, we still believe that this weakness will ultimately prove to be a correction within, but not a reversal of, the post-March structure.

A Summary

Just Call Me Tommy John. I had an operation to “transpose” a nerve in my pitching arm today and will be a non-dominant, one-handed typist for 1-2 weeks. Blogs will be shorter and monthly Insights may be late, but we’ll keep chugging along.

Stocks: Today’s decline was deep enough to reverse the rally from the October low. Given the deteriorating near- and medium-term momentum background, the excessively bullish sentiment background, and a peaking 22-week cycle, we need to respect the potential for a deeper – even full – retracement of October’s rally. While a 50%-61.8% retrace would allow for a test of 1061-1051, our focus will be on 1020. A break of that level would confirm a reversal the more important post-July uptrend.

All that said, this decline from the 1101 high appears corrective, there were a number of important bullish confirmations, and long term momentum has a bearish bias. Thus, despite the prospects for lower lows, we still think that this weakness is a correction within, but not a reversal of, the post-March uptrend.

Long Bond: We recently made the observation that the October 2-15 decline was impulsive and, therefore, the first leg of a larger decline. With that in mind, Monday’s weakness came with in a hair’s breadth of reversing the corrective rally from the August lows. Such a development (i.e., further weakness through 117:18) would, in turn, put the larger post-June rally at risk. Last week’s high at 121:02 is resistance.

In last Wednesday’s post we suggested that oil could experience a meaningful reversal at any time. That reversal (from important resistance at 79-81) is now evident given that near term momentum has turned down, joining an already deteriorating medium term background. A decline below 78 would imply a test of the 75 breakout area.

We have been suggesting that the dollar was in position for a significant upside reversal. Monday’s rally was a small step in that direction. Further strength through 77.47 would be a very large step.

Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

A Short Break in the Action

Editors Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website an/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

As suggested last week, there will be no Short Term Review this week. And, due to a pending operation on a nerve in the pitching (and writing) elbow, there may not be blog tomorrow night or Tuesday morning. But there might be, so please check in as usual.

Finally, thank you for your continued support. Last week you set a record for the number of unique visitors. We appreciate it very much.

Keeps on Ticking

Editors Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

On Thursday the S&P 500 rallied 1.1%. Both breadth and the up/down volume ratio were positive by a bit less than a 3:1 margin. Total volume fell by 7%. Most readers probably remember the Timex Watch slogan “Takes a Licking and Keeps on Ticking.” The market is still ticking (barely). On Tuesday and Wednesday the indexes were hit fairly hard. On both days there were more than 1300 declining issues on the NYSE and, on Wednesday, the S&P followed a new recovery high with a five-day low. Then on Thursday, both the DJIA and S&P opened on the weak side, but then recovered a good chuck of the losses of the two previous days. Indeed, the DJIA recovered almost all of those losses.

DJIA 30-Minute HLC
In recent comments, we have used phrases like “skating on thin ice” and running out of time.” Despite Thursday’s recovery, we still respect the idea that the rally from the October 2 low is fragile. In turn, that puts the larger uptrend from the July (and perhaps the March) low under pressure. To put that into perspective, the daily Coppock Curve is likely to be in full retreat within the next two days and the weekly Coppock probably peaked last week. This increased bearish bias is taking place in an overbought sentiment background and what appears to be a fatigued 22-week cycle (which is finishing its 15th week.

Despite the weakness of the past two days, which resulted in a second degree lower low for the first time since the rally from the October 2 low began, we are not quite ready to give up on the idea of higher highs. As mentioned yesterday, this rally is skating on thin ice. Both near and medium term momentum indicators are under pressure, sentiment is showing excessively bullish readings, and the 22-week cycle is peaking. Other than that, everything looks fine!

From an Elliott Wave perspective, the October rally has a corrective number of waves. Moreover, 1075-1066 is increasingly important. We have suggested that a break of 1067-1066 would be enough to lock in the entire post-July rally as a complete corrective rally pattern. We will likely soon raise that key benchmark to 1075-1074. Such a development, combined with the momentum, sentiment and cycle pressures mentioned above would not bode well for the market. A decline through 992-991 will lock in the larger July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The post-March uptrend is still intact (the uptrend line is just above 1050). The recent highs at 1097-1101 is now first resistance. Although the door is still open for a challenge of 1121-1156, it appears to be closing.

Running Out of Time

Editors Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website and/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

Wednesday was an outside day. The S&P 500 rallied to a new recovery high before declining sharply in the final hour to penetrate the prior day’s low and finish with a loss of 0.9%. This was the first time in more than two weeks that it recorded back-to-back losses. Breadth was negative by a bit less than 3:1, and the up/down ratio was negative by a 13:5 margin. Total volume increased by 5%. Like Tuesday, Wednesday was a distribution day.

Despite the weakness of the past two days, which resulted in a second degree lower low for the first time since the rally from the October 2 low began, we are not quite ready to give up on the idea of higher highs. As mentioned yesterday, this rally is skating on thin ice. Both near and medium term momentum indicators are under pressure, sentiment is showing excessively bullish readings, and the 22-week cycle is peaking. (Other than that, everything looks fine!)

The decline has yet to lock in the rally from the October 2 low as a complete pattern. We have said that our focus is on 1067-1066. That is still our focus; a break of that level in coming days would be enough to lock in the rally as a complete corrective rally pattern. Such a development, combined with the momentum, sentiment and cycle pressures would not bode well for the market in the weeks ahead. A decline through 992-991 will lock in the larger July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The post-March uptrend is still intact (the uptrend line is just above 1048). The recent highs at 1097-1101 is now first resistance. Although the door is still open for a challenge of 1121-1156, it appears to be closing.

Meanwhile, oil rallied to 81 yesterday, which is at the upper end of the 79-81 range that we mentioned in past comments. Near term momentum is overbought, medium term momentum has been weak, and the price pattern is extended. Whether the recent strength proves to be a third wave remains to be seen, but these conditions suggest that a meaningful pullback could occur at any time. Nearby support is 79-78, then the 75 breakout area. Beyond 82-83, we might have to look for a challenge of the low 90s.

Skating on Thin Ice

Editors Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website an/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers on the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

On Tuesday, the S&P 500 fell 0.6%. Breadth was negative by a bit less than 4:1, and the up/down volume ratio was negative by a 10:3 margin. Total volume increased by 17%. All of this suggests that Tuesday was a distribution day.

In recent comments we have laid out evidence suggesting that the rally from the October 2 low was subdividing, allowing for still higher highs. Indeed, in yesterday’s post we allowed as how the S&P could still be within the third wave of a larger five wave structure. Tuesday’s decline weakened that possibility, but did not eliminate it. It will take a decline through Friday’s low (1081.53) to complete a five wave pattern, but it will require a violation of 1067-1066 to lock in the rally from October 2 as a complete pattern. In “Plain English” this means that, while the potential for higher highs may not be robust, it still exists.

S&P 500 with Near and Medium Term Momentum
Meanwhile, near term momentum is headed toward a downside reversal. The daily Coppock Curve is positioned to peak over the next 3-5 days for both the S&P and a majority of the 24 industry groups. Moreover, the 22-week cycle is peaking. So while the Elliott Wave pattern allows for an extension to higher highs, the non-Elliott evidence suggests that the current rally is running out of time.

The post-March uptrend is still intact (the uptrend line is just below 1046). This, plus the fact that momentum is still positive keeps the door open for a challenge of 1121-1156.

That said, first support is still indicated at 1082-1081, but our focus will be on 1067-1066. A break of that level, combined with the momentum condition, would not bode well. A decline through 992-991 will lock in the larger July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

When is a Fifth Wave not a Fifth Wave?

Editors Note: Our new website is expected to be fully operational by the first week in November. Until then, we will continue to provide detailed posts and will endeavor to include more comments on bonds/yields, the dollar, and commodities. We will also keep you appraised of any developments related to the website an/or to our publication schedule. Once the website is ready, our monthly Insights, the Short Term Review, and our blog comments will only be available to subscribers via the website. (We will keep our current blog page, but will change to a summary format.) If you are interested in being added to our growing list of charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

On Monday, the S&P 500 rallied 0.9% and closed at another new recovery high. Breadth was positive by better than 4:1, but the up/down ratio was positive by a much less robust 7:4 margin. Total volume declined for the second straight day and is back below its 21-dma.

S&P 500 Hourly
In recent comments we have pointed out that, while the daily and hourly charts had been out of sync with one another, they had come back together. Indeed, in this weekend’s Short Term Review, we noted that Friday’s pullback could be counted as a fourth wave. Thus, today’s rally can be counted as a fifth wave. But is it?

As mentioned in Thursday’s post, one of the basic rules of Elliott is that the third wave in a five wave sequence cannot be shorter than the both waves 1 and 5; it can be shorter than either one, but not both. If the rally from Friday’s low continues and carries through 1111 on the S&P (or 10188 on the DJIA), then the current third wave within the rally from the October 2 low will be shorter than both the first and supposed fifth waves. In that case, the current fifth wave would have to be counted as a third wave within a larger October third wave. In “Plain English” that would mean that the rally from the October 2 low is extending, which would allow for higher objectives than might otherwise be the case. At the least, it would make a challenge of 1121-1156 more likely.

From a non-Elliott Wave perspective, it is important to note that the post-March uptrend is still intact (the uptrend line is near 1043) and near term momentum is in position to maintain a bullish bias for another 4-6 days. So, the bottom line is that we cannot rule out a rally through 1111. The 1121-1156 range remains a distinct possibility

With all of the above in mind, first support is now indicated at Friday’s low (1082-1081). Second support remains at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

Short Term Review

It would seem that inter-index relationships, cycles, momentum, sentiment, and the Wave count all suggest that the S&P 500 is approaching an intermediate top. In turn, this implies that the S&P 500 is on the verge of its largest correction since at least the May-June 2009 pullback and perhaps since the January-March 2009 decline.

The chart and comment above are from the first page of our new Short Term Review. This is likely to be the last report before we move to a new subscription service, probably in early November. This new report was already been sent to those who have expressed a desire to be a subscriber.

In the meantime, we will continue to update this blog with detailed posts. However, as our new website becomes a reality, these comments will move to that site. This blog will continue, but, out of necessity, these posts will contain less detail.

An Important Juncture

On Thursday, the S&P 500 closed at the day’s high for a gain of 0.4%. Breadth was positive by 7:6, and 17 of the 24 S&P industry groups were higher. Conversely, the up/down ratio was negative by an 8:7 margin; total volume was modestly better than the prior day’s total.

By our reckoning, the S&P is at an interesting juncture. In yesterday’s post we noted that the rally from the October low only had three waves from an Elliott Wave perspective. That is the case on the daily chart, but it also seems obvious (at least to us) that this same rally is currently in a fifth wave on the hourly and half-hourly charts. And that is where it gets interesting.

S&P 500 Hourly

One of the basic rules of Elliott is that, within a five-wave structure, the third wave can never be shorter than both of the other impulse waves (waves 1 and 5). At today’s high on our hourly closing chart, the fifth wave was almost exactly the same length as the third wave that – in turn was shorter than the first wave. Similarly, the fifth wave on our half-hourly point and figure chart occupied as many boxes as the third wave (which occupied fewer boxes than the first wave).

As a result, a follow through tomorrow nicely into the 1097-1098 range would be enough to make the third wave from the October 2 low the shortest impulse wave. Thus, the rally of the past three days would be better counted as a third wave within a larger third wave – not a fifth wave. If so, the hourly charts would be in sync with the three waves in the daily chart.

With this in mind, we also note that the daily Coppock Curve has decisively reversed to the upside and has the potential to maintain this bullish bias for another 6-8 days. A similar time frame is indicated for a majority of the 24 industry groups. So it would seem that, in addition to the price pattern, the momentum configuration implies more time and higher recovery highs. The door is still open for a challenge of 1121-1156.

Nonetheless, we still are of the opinion that October’s rally is more of an ending than a beginning pattern (not unlike the period just prior to the June-July correction. The uptrend line from the March low is currently near 1036, but first chart support is now indicated at 1065-1058; second support remains at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

Stocks, Bonds, and Oil: What a Wednesday

On Wednesday, the S&P 500 gained 1.8%, which was its best performance of the month to date. Advancing issues outpaced decliners by better than 6:1 and the up/down volume ratio was positive by a 15:2 margin. Total volume increased by more than 20% for the second consecutive day and edged just above its 21-dma.

Our media friends were all agog at the fact that the DJIA cracked 10,000. From our perspective, the S&P’s rally decisively through 1080 was more important. Indeed, while that was something we had been waiting for, we may have underestimated its importance. This is because each of the three uplegs since the August 17 low can be counted as five-wave patterns, but the current rally from the October 2 low still only has three waves. As a result, we may still have to wait for a fourth wave pullback and a fifth wave to another new high. For some time, we have suggested that a rally through 1080 would open the door for further strength to 1121-1156. That now appears to be a more reasonable possibility.

S&P with Bullish Percentage Index

That said, we still need to respect the idea that today’s action is more of an ending than a beginning. Indeed (and as indicated yesterday), the overall action is reminiscent of the period just prior to the June-July correction. The uptrend line from the March low is currently near 1034, but first chart support is now indicated at 1065-1058; second support remains at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

While most of the attention was on stocks, the nearby contract for the long bond fell to as low as 119:04 on Wednesday – and achieved that low on five waves from the October 2 peak. In addition, some (not all) important uptrend lines have been breached, the daily Coppock is weak, and the weekly Coppock is peaking. All of this suggests that a new downtrend is just beginning. The post-June uptrend line is near 118:16, which is just above nearby chart support. Tactical support is at 114:25. Nearby resistance is at 121:08, then 123:25.

And to top it all off, oil finally rallied through 75. Though it was a marginal breach, it was what can be called a “triple top breakout” or even a “quadruple top breakout” in point and figure parlance. That is important because it was the P&F chart that alerted us to the idea that the recent breakdown to 66-65 was a bear trap. Now, Wednesday’s breakout paves the way for higher P&F objectives; traditional P&F charts suggest the 94 area, but we will focus first on 79-81. Prior resistance at 71-75 is now support.

Oil

Last Gasp Pending

On Tuesday, the S&P 500 fell 0.3%, which broke a six-day winning streak (the longest in over five years). Breadth was negative by a 7:4 margin, while the up/down volume ratio was negative by 4:3. Total volume increased by 20% over Monday’s semi-holiday level, but remained below its 21-dma.

In recent posts, we have made the case that, while there are a number of negative indicators of time, intermediate momentum, and sentiment to consider, the S&P seemed to have some unfinished business. From an Elliott Wave perspective, another new recovery high above September’s 1080.15 benchmark still seemed needed in order to complete a more proper or correct pattern. The rally of the past six days fell just short with a peak of 1079.46. However, both the daily Coppock Curve and the Bullish Percentage Index (BPI) for the S&P 500 suggest that the door is still open for another challenge of 1080. The Coppock has turned up and has the potential to maintain a bullish bias for 7-9 days. Similarly, while the BPI is overbought in absolute terms, its daily stochastic indicator is coming up off of an oversold condition; this is reminiscent of the action just prior to the June-July correction.

Bullish Percentage Index for the S&P 500
If these conditions do lead to a rally, such a move would not be an “all clear.” Rather, we would view it as a last gasp that would serve to satisfy the minimum requirements for a complete bear market rally pattern from at least the August 17 low and probably the July 8 low. We would also have to respect the possibility that the entire post-March rally was drawing to a close. All of this implies that, even allowing for another recovery high, the S&P 500 is on the verge of its largest correction since at least the May-June 2009 pullback and perhaps since the January-March 2009 decline.

The S&P has been probing first resistance at 1070-1080. While a rally through that range may not carry all that far, the door would nominally be open for a challenge of second resistance at 1121-1156.

As of now, the uptrend from the March low is still intact (the uptrend line is currently near 1031). First support is indicated at 1057-1051; second support is at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

So Close, But …

… yet so far. On Monday, the S&P 500 rallied 0.4%. This was its sixth consecutive gain, which is the longest such string since June 2007. Breadth was positive by a 4:3 margin, while up volume was better than down volume by better than a 2:1 ratio. Despite the semi-holiday atmosphere, total volume was little changed from Friday’s level.

The day’s high for the S&P was 1079.46, which was just shy of its 1080.15 rally high. We would like to see the S&P cross its t’s and dot its i’s by moving to a new high. In that regard, the DJIA did eke out a new high and near term momentum has taken on a bullish bias for most of the S&P’s 24 industry groups, so the prospects for a higher high by the “500” would seem to be reasonably good. A rally through last month’s benchmark would satisfy what we believe are the minimum requirements for a complete pattern from at least the August 17 low and probably the July 8 low. We would also have to respect the possibility that the entire post-March rally was drawing to a close.

S&P 500 with 22-week Cycle
With that Elliott Wave consideration in mind, we also need to be alert to the idea that this week is the 14th week since the July low, which suggests that we need to be alert to the idea that the 22-week cycle is peaking. In addition to this time element, the weekly Coppock Curve is peaking and is positioned to take on a broad-based bearish bias before the end of the month; this suggests that the next short term momentum peak could also have bearish intermediate implication. Moreover, the sentiment environment has moved from skepticism four weeks ago to signs of excessive bullishness now.

All of this implies that the S&P 500 is on the verge of its largest correction since at least the May-June 2009 pullback and perhaps since the January-March 2009 decline.

We have been pointing to 1070-1080 as first resistance; while the index is testing that range, it has yet to clear it. Second resistance is 1121-1156.

As of now, the uptrend from the March low is still intact (the uptrend line is currently near 1029). First support is indicated at 1057-1051; second support is at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

A New STR

Stocks: The next very few weeks could be quite important. The coming week will be the 14th week since the July low, which suggests that we need to be alert to the idea that the 22-week cycle is peaking. In addition to this time element, the weekly Coppock Curve is peaking and is positioned to take on a broad-based bearish bias before the end of the month. Moreover, the sentiment environment has moved from skepticism four weeks ago to signs of excessive bullishness now. Finally, the Elliott Wave pattern suggests that last week’s rally can be counted as the final leg from the July low and perhaps from the March low.

The above is the "Plain English Summary" for our latest Short Term Review, which we sent out to our preferred distribution lists earlier this morning.

Our new website still appears to be on track to be operational by the end of the month. When it is up, running, and fully interactive, we will be able to accept charter subscriptions. The response has been gratifying, and we will keep you up to date.

If you would like to see the full Short Term Review (covering equities, 10-year yields, the dollar, gold, and oil) AND are interested in joining our charter subscription list please send an e-mail to WMGALLC@gmail.com.

A Big Step in the Right Direction

On Thursday, the S&P 500 rallied for the fourth day in a row, posting a gain of 0.7%. Breadth was positive by a 7:2 margin, and up volume was better than down volume by a bit less than a 3:1 ratio. The day’s bullish flavor was aided by a 19% increase in total volume.

The most important aspect of Thursday’s rally was the fact that the S&P breached 1069.62, which effectively locks in the 9/29-10/2 decline as a corrective pattern. In turn, that virtually eliminates the idea that the index has begun a meaningful decline. Indeed, it supports our idea that the post-July rally pattern is not complete and that another new rally high appears needed before we can even begin to think of an important reversal.


That said, further strength through 1080.15 would seal the deal. That is the recovery high to date, and a rally through that benchmark would satisfy what we believe are the minimum requirements for a complete pattern from at least the August 17 low and probably the July 8 low. We would also have to respect the possibility that the entire post-March rally was drawing to a close.

With that in mind, we are getting ahead of ourselves. We would still like to see a breach of 1080. Today’s surge is best counted as only the third leg from the October 2 low. We can work with that as the final leg of a diagonal from the mid August low, but it could still prove to be a “”B” wave. Renewed strength in the hourly/daily momentum indicators would help to weaken that “B” wave possibility; so far, that is lacking.

As a result, the red (or at least yellow) flags mentioned in our last post are still evident. As indicated, those conditions can be easily corrected, and Thursday’s activity was a step in that direction.

We have been pointing to 1070-1080 as first resistance; while the index is testing that range, it has yet to clear it. Second resistance is 1121-1156.

With today’s rally, we will raise first support to 1057-1051, with 1020-1015 now viewed as second support. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The March-June rally was 97 calendar days. October 13 will be 97 days from July’s low. Similarly, March-July was 67 trading days; the post-July rally will match that on October 12.

Go Red Sox!

More Plusses Than Minuses

On Wednesday, the S&P 500 rallied 0.3%. However, it was an inside day as the day’s high was below Tuesday’s while the day’s low was above Tuesday’s low. Breadth was modestly negative, but the up/down volume ratio was modestly positive.

Total volume fell by 16%, but the inside day probably mitigates that otherwise negative statistic. Moreover, On-Balance Volume (OBV) confirmed the September high, suggesting that we still need to see a negative divergence (similar to May-June) before a more important top is at hand.

OBV (top) and 21-dma of NYSE Volume

The index has rallied 3.2% over the past three days and 23 of the 24 industry groups have gained ground over that time (the exception is Telecom Services). While this is a very short time span, it is a measure of the broad scope of this rally and is in line with our opinion that the trend is impulsive. This is viewed as yet another plus, along with the volume. As a result, we continue to think that the five-wave rally of the past few days is the first leg of a larger pattern.

Underneath all of this, the post-March uptrend line is still intact.

However, there are a couple of red, or at least yellow, flags. Very short term momentum has been deteriorating and the pattern of the past few hours can be counted as a triangle. Those conditions can be easily corrected, but for now they bear watching as a potential negative. Meanwhile, as long as the index remains below 1069 the possibility remains that this rally is a reaction within a larger downtrend.

Obviously, 1070-1080 is still first resistance. Second resistance is 1121-1156.

So far, the index has held indicated support in the 1036-1015 range. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The March-June rally was 97 calendar days. October 13 will be 97 days from July’s low.

1069 or Bust

On Tuesday, the S&P 500 rallied 1.4%. Both breadth and up/down volume ratios were positive by about a 5:1 margin. Perhaps most importantly, volume increased by 15%.

While the S&P is still short of last Tuesday’s high (1069.62), the rally of the last two days can be counted as a complete five-wave pattern. Moreover, hourly momentum is at its highest level since the liftoff from the mid-August low and the index penetrated the trend channel we highlighted in yesterday’s post. This combination suggests that the five-wave rally is the first leg of a larger pattern.

S&P Hourly with Coppock Curve
That said, the fact that the index remains below 1069 leaves open the possibility that this rally is nothing more than a reaction within a larger downtrend. So, in many ways, 1069 is an important benchmark.
Obviously, 1070-1080 is still first resistance. Second resistance is 1121-1156.

So far, the index has held indicated support in the 1036-1015 range. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The March-June rally was 97 cale

The Road to Perdition …

On Monday, the S&P 500 broke a four-day losing streak with a rally of 1.5%. Both breadth and up/down volume ratios exceeded 7:1. A 21% decline in total volume was a dampening factor.

Despite the disappointing volume, the rally has two things going for it. The hourly chart suggests that the pattern has an impulsive look to it and yesterday’s high overlapped the 9/25 low. Thus we know that this rally cannot be a fourth wave. While it can still be a second wave within a pending third wave decline, those developments represent initial evidence that the overall decline from the 9/23 high will prove to be corrective. That, in turn, would help confirm that the S&P has some unfinished business on the upside and could still rally to or through the 1080 high.

Such a rally would be in line with the comments made in the just released monthly Insights. From our perspective, the wave pattern from the mid-August low does not look complete. Notwithstanding Murphy’s fourth corollary (the road to perdition is paved with those waiting for one more), it would seem that another new high is needed to satisfy the minimum requirements for a complete count of any kind.

S&P 500 Hourly

That said, in Friday’s post we observed that, while the hourly chart suggested that the decline from the 9/23 high is corrective, we would wait for the daily chart to confirm. Monday’s overlap was a step in the right direction, but further strength through last Tuesday’s high (1069.62) would effectively lock in a corrective decline.

With the above in mind, it needs to be noted that the S&P was “up close and personal” with the post-March uptrend line. Friday’s low was just below 1020, and the trend line was just below 1015. On Tuesday, that line is moving through the 1019-1020 area. Thus, a reversal decisively back below Friday’s low would violate both chart and trend support. Given the increasingly fragile momentum background, such a breach would be viewed with more than passing interest.

So far, the index has held indicated support in the 1036-1015 range. Indeed, Monday’s reversal and the aforementioned trend line add to the significance of this range. Nonetheless, it will still take a decline through 992-991 to lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support. First resistance is at 1070-1080; second resistance is 1121-1156.

For those interested in such things, the March-June rally was 97 calendar days. October 13 will be 97 days from July’s low.

Monthly Insights

The virtually unanimous consensus Elliott Wave count is that the decline from the October 2007 high to the March 2009 low was a five-wave pattern. In fact, this count tightens the screw by referring to this pattern as the first wave of a larger five-wave decline. Indeed, under this interpretation it would seem that we are on the verge of a downside acceleration.

To make it clear, we disagree with that count for at least two reasons. First, and foremost, large sections of that 2007-2009 pattern cannot be counted as an impulse wave. Second, there is a case to be made that either the 2007 high or the 2009 low (or both) were not an orthodox benchmark.

S&P 500 with 2007-2009 Wave Structures

The above comments are the opening paragraphs in our just released Monthly Insights. The above chart is but one of many in that document. We expect this to be our last free Monthly Insights as our website and subscription service are soon to be available to our charter members. So far, our indications of interest has been very gratifying. For those of you who haven't "pledged" we look forward to hearing from you soon!

If you are interested in subscription information, please e-mail us as wmgallc@gmail.com

Thank You DJIA

Editor’s Note: We just finished a glossary that will be included in our new website. It does not pretend to be all inclusive. However, we invite readers to offer technical analysis terms that they would like to see included. Total volume was about 7% below Wednesday’s level.

On Thursday, the S&P 500 suffered its largest decline since early July – and its six in seven sessions – with a loss of 2.6%. Breadth and volume ratios were so negatively lopsided that it was a 9:1 day.

In yesterday’s post we resolved a conflict between the hourly charts of the DJIA and S&P by effectively resolving the conflict in favor of the DJIA, suggesting that the S&P may still need to undercut the 9/25 low with a “C” wave to bring it in line with the DJIA. Thursday’s sell-off did allow the S&P to “catch up” by carrying the index below the 9/25 low and locking in the rally from the 9/2 low as a complete pattern.

The hourly chart suggests that the decline from the 9/23 high is corrective, but we will wait for the daily chart to confirm. That said, the post-July uptrend line has been violated and deteriorating near term momentum is still on the overbought side of neutral (even though the daily Coppock Curve has a bearish bias for 23 of the 24 industry groups have). So, still lower lows are likely. The index is probing the 1036-1015 support range, but it will still take a decline through 992-991 to lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support. First resistance has been lowered slightly to 1070-1080. Second resistance is 1121-1156.

For the record, we do not consider this decline to be the beginning of a major decline. We continiue to believe that near to medium term decline are corrections within, but not reversals of, the post-March bear market rally.

10-Year Yields


While the S&P was under pressure, so were 10-year yields. We have long focused on 3.30%-3.29% as an important support point and suggested that the decline from the August highs should at least challenge 3.17% (a 38.2% retracement of the December-August rally). On Thursday, 3.29% was violated and – almost in an instant – accelerated to 3.19%. The 3.17%-3.11% range is now support. Prior support at 3.30%-3.29% is now important resistance. We continue to respect the possibility that the December low is an historic benchmark.

A Tale of Two Counts

Editor’s Note: We just finished a glossary that will be included in our new website. It does not pretend to be all inclusive. However, we invite readers to offer technical analysis terms that they would like to see included. Hopefully we already have most of them, but we will appreciate any and all suggestions.

On Tuesday, the S&P 500 suffered its fifth decline in six sessions, with a loss of 0.3%. Breadth was negative by more than a 2:1 margin and down volume bettered up volume by a 7:4 ratio. Total volume expanded by 29%. All and all, Wednesday was a classic distribution day.

DJIA Hourly

We don’t like to get too hung up on hourly “close only” charts because different sources can provide slightly different data, and a tick here and there can make a difference in how one counts a wave. With that in mind, the data for the DJIA and S&P tell slightly different stories. Specifically, the 9/25-9/29 rally on the DJIA is a clear “five” while the same rally for the S&P is better counted as a “three.” One hourly downtick is the difference. In order to resolve this conflict “we went to the video tape” – an hourly range chart for both indexes provided by StockCharts.com. Here, the rally for both indexes is best counted as a five wave pattern.

But a conflict remains. Yesterday’s decline carried the DJIA below the 9/25 low, while the S&P remained above that low. Moreover – and more importantly – the DJIA’s decline was sufficient to both lock in the rally from the early September low as a complete pattern and to overlap the 8/28 high. By contrast, the S&P has neither overlapped nor locked in a complete rally.

So now what? It seems that the best way to bring both charts into some sort of harmony is to count the 9/25-9/29 rally as the end of a (3-3-5) “B” wave within a larger correction from the 9/23 high. If this is correct, then the overall structure for the decline is counter trend. In other words, the larger uptrend from the July lows probably has some unfinished business.

That said, both hourly and daily momentum have a bearish bias, and the S&P may still need to undercut the 9/25 low with a “C” wave to bring it in line with the DJIA. Thus, lower lows would help clear up the picture. With that in mind, we will moderate the downside somewhat to 1036-1015 in order to account for the wave relationship implied by the “B” wave rally. It will still take a decline through 992-991 to lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

First resistance has been lowered slightly to 1070-1080. Second resistance is 1121-1156.