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.