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.