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.