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!