A Short Term Pop

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The S&P 500 rallied 0.4% on Monday, barely making a dent in Friday’s sell-off. Moreover, Monday was an inside day; the lower high and higher low than those seen on Friday is an indication of indecision. Nonetheless, breadth was positive by 4:3 and up volume outpaced down volume by a 7:5 margin. Total volume was almost twice Friday’s short session. The daily Coppock Curve has a bearish bias for all 24 S&P industry groups.

The S&P is trying to dodge a bullet. Despite all the hoopla associated with Dubai, the index continues to hold support at 1081-1072, which represents a 38.2%-50% retrace of the rally from the November 2 low at 1029. As such, it is still only a normal pullback within the smallest wave degree. Moreover, the correction of recent days is essentially a trading range and none of the legs (either up or down) were impulsive. Finally, positive divergences were evident by hourly momentum oscillators. All of this suggests that the trading range of recent days is a continuation pattern within an uptrend and that the index is positioned for a short term pop.

30-Minute S&P with Stochastic Indicator

That said, both near and medium term pressures are evident. Thus, if a "pop" does develop, it will likely be short-lived. It may be nothing more than a last gasp “C” wave. In that regard, we would view a rally through 1102 as a short-term breakout paving the way for a rally to the recent 1111-1114 recovery high and possibly the 1121-1156 range that we have regularly highlighted as a significant resistance range.

Conversely, a breach of the recent 1087-1084 low would violate both chart support and an important uptrend line from the early November low. As such, the door would be open for a deeper test of normal support (down to 1072). Nonetheless, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.

A pre-Insights Summary

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We have begun work on the monthly Insights, so there will be no Short Term Review this week. In lieu of the STR, this blog will briefly cover the S&P. yields, the dollar index, and commodities.

Stocks: On Friday, the S&P 500 held support at 1081-1072, which represents a 38.2%-50% retrace of the rally from the November 2 low at 1029. As such, it was a normal pullback within the smallest wave degree. So, despite all the hype, Friday was something of a ho-hummer. That said, the market is not out of the woods. Both near and medium term momentum indicators are weak, sentiment remains excessively bullish, and important trend lines (relative to both price and momentum) have been violated. Lower lows, therefore, are likely in the weeks ahead. The “reason” will become apparent in due course – and it may not even be Dubai. Our primary focus for support is on 1029. A break of that level would confirm that the post-July rally is over. As for resistance, the index has not been able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 range that we have regularly highlighted.

S&P 500 with Intermediate Momentum

Yields: Last week, 10-year yields came within a hair’s breadth of breaking to new post-August reaction lows. Even if new reaction lows are achieved, they would fit in with the comments expressed in our most recent STR. While there have been mixed signals, we pointed out that October’s rally proved to be corrective and, therefore, took place within the larger post-August downtrend. Fairly ample support exists down to 3.175%; a violation of that level would allow for further weakness toward 3.0% +/-. Although 3.55% area is still viewed as important resistance, a break of 3.175% would do much to lower initial resistance to something closer to 3.32%.

Commodities: The most important news of the week was the decisive breakdown by oil through both important chart support and an important uptrend line. Nonetheless, the equal-weighted Continuous Commodity Index has held up quite well. That said, intermediate momentum for the index is due to take on a bearish bias within the next 3-4 weeks (momentum for gold may hang in there for 4-7 weeks, while food may show some relative strength). Nearby support for the CCI is a 466-464, but it will probably take a violation of 452-448 to qualify as an important breakdown. Nearby resistance is indicated near 488 then 505-510.

US Dollar: The wait continues. Wave form, momentum, and sentiment all continue to suggest that an upside reversal is imminent. However, the post-March downtrend remains intact as the index continues to beat to its own drummer. In the absence of an upside reversal, we have had to respect the potential for a challenge of 74.30-73.90; that test was achieved last week with a move to 74.23. As for resistance, if our overall count is correct, the ultimate potential is for a rally to (or through) 88-89. Our more immediate focus is on 76.82 because a rally through that level would probably be enough to indicate that the tide has finally turned.

“Really Significant”

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In Tuesday night’s blog, we said that it would be the last post of the week unless something “really significant” happens. Well, it appears that the unfolding debt crisis in the Middle East could be the catalyst for a significant day. Most global markets were under pressure on Thursday, and those pressures are continuing today. The US market, which was closed on Thursday for Thanksgiving, is likely to play catch up; as this is being written, the S&P futures are down over 33 points. That translates to a 3% decline for the cash index to about 1077.

Obviously, a lot can happen during the trading day, but let’s put a 3% decline into perspective. We had to go back to June in order to find a day when the S&P closed down at least 3%, but we only had to go back a month to find a daily range in excess of 3%. Moreover, a move to 1081-1072 would represent a 38.2%-50% retrace of the rally from the November 2 low at 1029. A decline to 1077 would, therefore, only be a normal pullback within the smallest wave degree.

S&P 500

So, the problem is not today’s anticipated catch up; it is what could come afterward. Such a decline would complete a top formation and would decsively breach the post-March trend line (currently at 1108). It also comes two days after the daily Coppock Curve turned down and joined its already weak cousin, the weekly Coppock (readers may remember that we think that the weekly Coppock could remain under pressure through the rest of the year). In addition, most advance-decline lines (as well as On-Balance Volume) did not confirm the recent highs, sentiment is excessively bullish, and cycles are exerting downward pressure. All of this implies that the market is in position for an intermediate decline, not just a one-day wonder.

As mentioned in Tuesday’s post, a violation of 1100-1085 would likely open the door for a test of 1029-1020. We have said many times that a break of 1020 would confirm that the post-July rally was over. That would be the more important event.

As for resistance, the index was not able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 resistance range that we have regularly highlighted.

In sum, we have suggested that the downside risk was beginning to outweigh the upside potential in terms of both price and time. Early indications are that today’s action may begin to put that observation to the test.

Oil Breaks Down

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This is the last post of the week unless something really significant happens. Have a Happy Thanksgiving.

The S&P fell by less than 0.1% on Tuesday. The breadth ratio was negative by 8:5 and up/down volume was positive by a 3:2 margin. Volume fell slightly from Monday’s level and remains below both four billion shares and its 21-dma. The daily Coppock Curve now has a negative bias versus 18 of the 24 S&P industry groups.

Yesterday, we observed that the daily Coppock Curve had probably peaked. That was confirmed today by the Coppock’s reversal against most of the 24 industry groups. Our initial estimate is that these near term pressures could persist for the balance of the year but – more importantly – they join an already weak intermediate background (the weekly Coppock has a bearish bias for 19 of the industry groups). This, plus the fact that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs (as is NYSE on-balance volume) suggests that the downside risk – in terms of both price and time – increasingly outweighs the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

Oil

As mentioned in recent comments, oil’s dominant feature has been an 81-76 trading range. Today, oil broke down from that range and, in the process, is seriously testing important support trend lines. As a result, preliminary point and figure objectives and Fibonacci retracements suggest that the initial downside potential is on the order of 71; below that, we would look for 66-64. There is now significant resistance in the 77-80 area.

Last Gasp?

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The S&P rallied 1.4% on Monday. That broke a three day losing streak but fell just shy of a new recovery high. The breadth ratio was positive by a bit less than 11:2 and up/down volume was positive by a bit less than a 5:1 margin. Volume increased modestly from Friday’s level, but remained below four billion shares and below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

In our new Short Term Review, we noted that, as of Friday, fully half of the common stocks on the NYSE were at least 10% below their ytd high. Moreover, in recent comments we have had something of a countdown for a coming peak of the daily Coppock Curve. Since today appears to have been the peak for the Coppock and since there was little improvement in the number of stocks below their ytd high, it would seem that Monday’s surge was of little actual technical benefit. If that is not enough, it should be noted that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs, as is NYSE on-balance volume.

S&P 500 with NYSE On-Balance Volume
Thus, it would seem that the only thing the market has going for it is that the major averages are still in an uptrend. It would seem, therefore, that the most popular averages are not accurately representing the health of the market. Indeed, that is a point we made in the recent STR and suggests that recent strength is a last gasp rather than the beginning of a sustainable upleg. That said, the days prior to Thanksgiving are often positive; for example the first three days of Thanksgiving week have been up for six of the past seven years. So the market may be able to hang in there for another few days. But the downside risk – in terms of both price and time – is clearly outweighing the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

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Thin Ice

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The S&P fell 0.1% on Wednesday, barely avoiding a second consecutive inside day. Breadth was negative by a 5:3 margin, but up/down was positive by a 4:3 ratio. Volume increased by 11% above Tuesday’s low level and remains below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

Given the second narrow day in a row, there is not much to add to recent comments. The rally from the November low is more corrective than not, which suggests that it is an ending pattern. The risk is that it is an ending pattern relative to the entire post-July rally. As a result, a breach of the uptrend from the early November low would be an early warning sign prior to a potentially important decline.

In addition to these price considerations, the daily Coppock Curve is positioned to maintain its bullish bias for another 4-5 days, even as the weekly Coppock currently seems likely to be under pressure through the rest of this year. This combination implies that a coming short term peak might also have negative intermediate implications.

Daily and Weekly Coppock Curves
Finally, sentiment is overbought. Our index was recently at levels that matched the 2007 high and has not backed off all that much. So, it would seem that price, momentum, and sentiment all suggest that the rally is skating on thin ice.

Last week’s test (at 1085) of the post-March uptrend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

As for resistance, the downtrend line from the 2007 high is currently at 1109.10 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

Inside Day Yields No Changes

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Although the S&P rallied 0.1% on Tuesday, the overall action resulted in an inside day, i.e., a lower high and higher low than what was seen on Monday. Volume fell back below four billion shares (versus Monday’s 4.7 billion shares). Breadth was negative by a 4:3 margin but up volume outpaced down volume a by 6:5 ratio. The daily Coppock Curve still has a bullish bias for all 24 S&P industry groups.

S&P 500 Hourly

Given the inside day, there is not much to add to the comments of recent days. The daily Coppock Curve is likely to maintain a bullish bias for another 5-6 days, but has yet to confirm the recent highs. Meanwhile, the weekly oscillator is overbought and deteriorating. In addition, the rally from the November low is more corrective than not, which suggests that it is an ending pattern. The risk is that it is an ending pattern relative to the entire post-July rally. As a result, a breach of the uptrend from the early November low would be an early warning sign prior to a potentially important decline.
As for resistance, the downtrend line from the 2007 high is currently at 1109.10 on the weekly chart. A decisive breach of this line would clear the way for a full challenge of the 1121-1156 resistance range that we have regularly highlighted.

Last week’s test (at 1085) of the post-March uptrend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

Hindsight is 20/20

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On Monday, the S&P rallied 1.5%. Volume surged by 20%, but that is only because Friday’s total (3.9 billion shares) was one of the lowest of the year; Monday’s level was still below the 21-dma. Breadth was positive by a 9:1 margin and up volume outpaced down volume a by 6:1 ratio. The daily Coppock Curve still as a bullish bias for all 24 S&P industry groups.

Market analysis is typically a weight of the evidence discipline and more often than not the array of indicators can be prescient. But sometimes hindsight adds 20/20 clarity. The recent behavior of the S&P relative to its dominant post-March uptrend line is such an example. In late October, the “500” breached this daily trend line for the first time and we took that as an important change and a sign that the market was in position for its biggest decline since June-July. Last week, however, the S&P rallied back through that line and then pulled back to test it. Today’s surge followed that successful test.

As a result, October’s breach deserves to be viewed as a “false break.” That said, we will keep the line where it is and will not re-draw it to reflect the November 2 low. This is because the original line currently has four touch points; a new one would only have two. By definition, the more touch points a trend line has, the more important it is. Anyone can draw a “trend” line with only two touch points.

S&P 500 (Weekly)

While we are on the subject of trend lines, the weekly chart shows that the S&P is at an important confluence. Both the post-March uptrend line and the downtrend line from the 2007 highs are about to collide. Moreover, the downtrend line is currently at 1109.10 – compared to today’s 1109.30 close. It would seem that a decisive breach of this line would clear the way for a full challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the daily Coppock Curve has the potential to remain constructive for another 5-7 trading days, which suggests that such a challenge should occur fairly quickly or it may be a lost opportunity.

Last week’s test (at 1085) of the post-March trend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

Short Term Review

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What We (Think We) Know

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On Thursday, the S&P fell 1.0%. Breadth was negative by almost an 8:1 margin and up/down volume was negative by an 11:2 ratio. Despite these pressures, volume decline from the prior day’s so-called holiday levels. The daily Coppock Curve still as a bullish bias for all 24 S&P industry groups.

S&P 500


Most of the Elliott Wave comments that we see totally ignore the fact that the 10-21-11/02 decline was a five-wave pattern. As such, that decline cannot be counted as either a fourth wave or a “B” wave. Furthermore, since the S&P followed that decline with a rally to new recovery highs, we have little choice but to label the decline as the “C” wave of a larger ABC correction. Indeed, the bigger question has to do with where that ABC pattern began. The two best choices are the highs on September 23 or October 19; we prefer the former.

Why is that important? There are two reasons. First, not only did the rally from the November 2 low achieve new ytd highs, its structure is corrective. Second, that 9/23-11/2 ABC pattern has established a key double-bottom at 1029-1020. The significance of that double bottom is that, if it is violated, it would lock in the post-July rally as a complete pattern (in the same way that June’s initial weakness reversed the rally from March’s low).

The corrective structure of the 11/2-11/11 rally means that we need to respect the possibility that it was a diagonal triangle. (We say “was” because Thursday’s sell-off locked in that rally as a complete pattern.) Diagonals are ending patterns so, if that “diagonal” count is correct, then the index could be on the verge of its largest correction since at least the July low. In prior posts, we have mentioned the intermediate negatives that bolster this correction possibility, so it seems clear that the post-July uptrend is skating on thin ice.

That said, the index could benefit from the fact that the daily Coppock Curve has the potential to remain constructive for another 6-8 trading days. Thus, the door is nominally still open for a challenge of 1121-1156. At the least this condition (plus an oversold 10-day CBOE put/call ratio) should provide an initial cushion.

Given the complete 11/2-11/11 pattern, a normal 38.2%-61.8% retracement would imply a move to the 1076-1058 area. A breach of that range would increase the risks for a test of the aforementioned 1029-1020 double-bottom.

Wiggle Room … and Unemployment

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On Wednesday, the S&P rallied 0.5%. Both breadth and up/down volume were positive by a bit less than 2:1. Despite the semi-holiday, total volume was on a par with that for the previous three days. The daily Coppock Curve now has a bullish bias for all 24 S&P industry groups.

Wednesday’s action accomplished two things. Early strength achieved a new recovery, thus locking in the prior 10/21-11/03 five-wave decline as a “C” wave. Then the later pullback was deep enough to qualify as all or part of the “D” wave of a diagonal triangle (aka, a bearish wedge). Since a diagonal is an ending pattern the risk is that the current rally is the final leg for the rally from the July lows. This, plus the divergences mentioned in prior comment, suggests that the index is increasingly at risk of a meaningful decline.
That said, we are inclined to give the rally pattern a little more wiggle room. The pattern appears incomplete and the daily Coppock Curve has the potential to remain constructive for another 8-10 trading days. Thus, the door is still open for a challenge of 1121-1156 (which encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend).

Support is at 1070-1060, then 1030-1020.

Unemployment Rate: 1948-Present
Turning to unemployment, in today’s “Breakfast with Dave,” economist (as well as friend and former colleague) David Rosenberg cited seven reasons supporting his notion that “the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market.” His conclusion is that the unemployment rate is likely headed for 12%-13%. Some months ago, we concluded that the unemployment rate could break 11% based on our technical work. Dave’s comment prompted us to go back to the data, and we determined that chart, P&F and Fibonacci resistance existed at 10.8%-11.4%. If that is broken, Fibonacci relationships imply a challenge of 16% +/-. We recall that the government has projected an average of 10% for 2010. While we do not attach a time frame to the above resistance levels, it would seem that the “official” projections are unrealistic.

Divergences to the Left of Us, Divergences to the Right of Us, But …

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On Tuesday, the S&P fell by less than 0.01%. Still, this was sufficient to break a six-day winning streak. Breadth was negative by 8:5 and up/down volume was negative by a 7:5 margin. Total volume fell 3% and is still-below its 21-dma. The daily Coppock Curve now has a bullish bias for all 24 S&P industry groups.

There are more near divergence than we can shake a stick at. For example, while the DJIA is currently at new recovery highs, it is the only major index in that position. Similarly, NYSE common stock breadth is below its October highs, the number of stocks making new 52-week highs is below its ytd peak, the Bullish Percentage Index for the broad-based S&P 1500 has broken down, and the S&P 500 is below it recently violated post-March uptrend. And, for what it is worth, over half of the S&P 500 components are more than 5% below the respective 2009 highs even though the index came within half of one percent of its own high yesterday.

S&P 500 Hourly

In addition to all of this (and more) non-Elliott Wave evidence, we view the wave structure of the current rally as being corrective in form. So, based on all of this, we believe that this rally should prove to be more of an ending than a beginning.

Nonetheless, we need to respect the potential for higher highs. If so, that would mean that the 10/21-11/3 five-wave decline will be counted as the “C” wave of a larger ABC correction. Thus, if the current rally continues on its corrective path, it will likely be a diagonal triangle (aka a wedge), which is an ending pattern. That said, the rally should benefit over the short run from an oversold and improving daily Coppock Curve and an oversold 10-day CBOE put/call ratio.

First resistance is 1096-1101, but the potential for higher highs means that we need to continue to keep an eye on 1121-1156 (which encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend). Support is at 1070-1060, then 1030-1020.

Surprise!

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On Monday, the S&P posted its sixth straight gain with a rally of 2.2%. Both breadth and the up/down volume ratio were sufficiently strong to generate the first 9:1 day since August 21. However, while total volume increased slightly, it was still well-below its 21-dma. The daily Coppock Curve now has a bullish bias for 23 of the 24 S&P industry groups.

Those readers who follow the Elliott Wave Principle are probably aware that the consensus count has us on the verge of a Primary third wave decline. For those readers less attuned to the Wave Principle, that means that the S&P is at risk of a decline that could be at least as devastating as the 2007-2009 decline (aka, Primary wave 1). We have consistently taken exception to that count, believing that the market environment is more benign. That said, the strength of Monday’s rally took us by surprise. It probably means that higher highs are likely in the weeks immediately ahead.

In Thursday’s blog, we pointed to short term resistance at 1065-1074 and 1096. And, in our monthly Insights we pointed to a count that still allowed for new rally highs; although we felt that the corrective nature of the rally from the November 2 low weakened that possibility, Mr. Market apparently feels otherwise. Meanwhile, the non-Elliott evidence still shows deteriorating medium term momentum, excessively bullish sentiment, and a declining 22-week cycle, all of which suggests that the rally from last week’s low is best viewed as a short term event in the context of a poor intermediate environment. As such, it should prove to be more of an ending than a beginning.

S&P 500 and 10-day CBOE Put/Call Ratio

Nonetheless, we need to respect the potential for higher highs. There are two primary reasons for this. First, even though the overall structure from November 2 is internally corrective, the rally from last Friday’s low could be counted as a fifth wave. However, Monday’s follow-through was enough to make the third wave the shortest impulse wave within the sequence; that is an Elliott Wave no-no and implies that the rally is extending. Second, Monday’s rally proved to be strong enough to turn the daily Coppock Curve to up, from down; the resulting bullish bias has the potential to last for the better part of the next two weeks. Beyond that, it is worth noting that the 10-day CBOE put/call ratio has moved to its most oversold level in a year.

While the six-day winning streak suggests that the S&P is due for a pullback, the above “internals” imply higher highs, corrections along the way notwithstanding. We have had an eye on 1121-1156 as an important resistance area for some time. It is important because it encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend. There is intervening resistance at 1096-1101. Support is at 1070-1060, then 1030-1020.

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We had hoped to release our monthly Insights today, but finalizing the website and working on our ability to provide webinars and teleconferences was time consuming. The report will be released tomorrow to those who have expressed the desire to be added to our “charter subscriber” list.

On Thursday, the S&P posted its fourth straight gain with a rally of 1.9%. Breadth was positive by better than 9:1 while the up/down ratio was better by a bit less than 5:1. However, total volume fell by 12%. The daily Coppock Curve has a bullish bias for 13 of the 24 S&P industry groups.

Despite all the excitement by the media, the action of recent days is normal. We have made the case that, while the decline from October’s high is impulsive, we could see a decent rally this week. The rally of recent days certainly has been “decent,” but it is still only a normal Fibonacci retracement – and, so far, it is corrective. As a result, the risk is that this four day rally is only a second or “B” wave within a larger decline.

Fibonacci resistance is in the 1065-1074 and the second wave of prior degree is at 1096, so this rally has its work cut out for it. Moreover, almost 40% of the stocks in the S&P are at least 10% below their ytd high. All of this, plus the fact that non-Elliott evidence is poor, e.g., poor on-balance volume, a 22-week cycle top, overbought and deteriorating momentum, and excessively bullish sentiment, suggests lower lows in the weeks ahead. This background suggests that, even if the S&P challenges its recent highs, there will be more and greater divergence than have been recently apparent.

Our main support focus is still on the October 2 low at 1020 is fragile support. That is important because a break of that level will signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Fragile Support

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On Wednesday, the S&P posted its third straight gain with a rally of 0.1%. It could have been better, but a sharp final hour sell-off erased most of the day’s earlier strength. Even though the index finished on the plus side, both breadth and the up/down volume ratio were negative. Moreover, total volume increased. So, even though the index suggested that Wednesday was an “up day,” it was essentially a “down day.” The daily Coppock Curve has a bearish bias for 22 of the 24 S&P industry groups.

S&P 1500 A-D Line

The “conundrum” between the hourly and daily charts that we spoke of recently has disappeared. Both charts suggest that the decline from mid October to early November was a five wave pattern. Given the non-Elliott evidence (i.e., poor on-balance volume, a 22-week cycle top, overbought and deteriorating momentum, and excessively bullish sentiment), this five-wave decline is likely the first leg of a larger correction.

If so, the recent 1029 low will not hold up, which may mean that the October 2 low at 1020 is fragile support. That is important because a break of that level will signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Nearby resistance is at 1061-1067.

Lower Lows Still Likely

Editor’s Note: We are currently writing November’s monthly Insights. In addition, we are putting the finishing touches on our new website. The site should be functional within a few days and we will finally begin to take subscriptions a few days after that. At this point, we expect to e-mail the Insights report to those who have informed us of their intent to subscribe. In addition, if all goes well, the comments that have appeared on this blog will only be available on the website. If you are interested in becoming a charter subscriber, or would like more information, please send an e-mail to WMGALLC@gmail.com.

Yesterday, we described Monday’s action as “all over the place.” Tuesday was much different; it was an “inside day” (i.e., a lower high and higher low than those seen on Monday). As a result, Tuesday’s 0.2% gain was more modest than Monday’s 0.7% rally. Internally, however, Tuesday was a better day; breadth was positive by a 5:2 margin (versus Monday’s 4:3 spread) and upside volume increased by 20% despite an 11% decline in total volume. Nonetheless, the daily Coppock Curve has a bearish bias for all 24 S&P industry groups.

Cumulative Up-Down Volume (14-dma)

In yesterday’s post we suggested that Tuesday’s action would help determine whether a fifth wave down from last month’s high was extending or whether the index has begun a somewhat volatile corrective process. Taken by itself, Tuesday’s inside day, together with the healthy internals, leans toward the latter scenario.

Nonetheless, the S&P is by no means out of the woods. On-Balance volume is on the verge of breaking an important trend line. If it does, it would confirm the S&P's breach of a similarly important line. Moreover, it appears that the 22-week cycle has peaked, the weekly Coppock Curve is positioned to have a bearish bias through the rest of this year, and sentiment is at excessively bullish levels. All of this, together with the impulsive character of the decline from last month’s high, implies lower lows in the weeks ahead.

Our focus is on the October 2 low at 1020. A break of that level will effectively signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Nearby resistance is at 1049-1054.

More to Come?

Editor’s Note: We are currently writing November’s monthly Insights. In addition, we are putting the finishing touches on our new website. The site should be functional within a few days and we will finally begin to take subscriptions a few days after that. At this point, we expect to e-mail the Insights report to those who have informed us of their intent to subscribe. In addition, if all goes well, the comments that have appeared on this blog will only be available on the website. If you are interested in becoming a charter subscriber, or would like more information, please send an e-mail to WMGALLC@gmail.com.

The S&P 500 was all over the place on Monday. It was up strongly early in the session, but then fell back below Friday’s low before finishing with a moderate 0.7% gain. Breadth was positive by a 4:3 margin but the up/down volume ratio was little better than flat. Total volume fell by 8%, but remains above its 21-dma. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

In one of those Elliott Wave conundrums, the daily range chart has a clean five-wave “look” to it while yesterday’s action has given something of a corrective flavor to the hourly chart. This bears some watching (no pun intended), but suggests that the fifth wave may be extending into five waves of its own. Tuesday’s action will help determine whether that is the case or whether the index has begun a somewhat volatile corrective process.

S&P 30-Minute HLC

With that in mind, most conventional short term momentum indicators are at oversold levels. However, we will allow for the possibility that these may be “bad oversold” levels, especially given the fact that the daily Coppock is positioned to maintain its bearish bias for another 5-8 days.

Given the action of the past two days, our focus is now on the October 2 low at 1020. A break of that level will effectively signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Nearby resistance is at 1049-1054.

Progress Report

Editor’s Note: We are currently writing November’s monthly Insights. In addition, we are putting the finishing touches on our new website. The site should be functional within a few days and we will finally begin to take subscriptions a few days after that. At this point, we expect to e-mail the Insights report to those who have informed us of their intent to subscribe. In addition, if all goes well, the comments that typically appear on this blog will only be available on the website. If you are interested in becoming a charter subscribers, or would like more information, please send an e-mail to WMGALLC@gmail.com.

Both our 30 minute HLC P&F chart and our hourly line chart on the S&P can be counted as a five wave decline from October’s high. This suggests that the index could experience a decent rally during the coming week. However, if our count is correct, this rally would be expected to be followed by a new decline that should be at least as intense as that experienced in recent days.