Wednesday was a nice day. The S&P 500’s 2.16% gain was the best since April 9. It was also broadly based; 22 of the 24 industry groups in the “500” gained ground. We are inclined to treat this as the beginning of a second upleg for the larger rally from the March low.
In recent posts, we have regularly made the case that near term rates of change were positioned to bottom by early May, while intermediate momentum was likely to maintain its post-March bullish bias into June. This combination suggests that a coming near term bottom would also have bullish intermediate implications. In addition, the attached point and figure (P&F) chart – showing the backing and filling of recent days as suggested by numerous breaks of trend lines – implies that the S&P has completed a consolidation or continuation pattern and has begun a new (second) rally phase from the March low.
The P&F count suggests a challenge of 895, but we are inclined to look for resistance at 897-919, then 944. There is intervening resistance near 875. Nearby support begins at 865-867.
In this morning’s post, we mentioned that the US long bond was attempting to resolve the conundrum between the Elliott Wave count and the underlying non-Elliott Wave environment. Today’s decline proved to be a quick – and successful – test of what we referred to a second support. The 121-123 range is trend and Fibonacci support. If that range is violated, then lower lows are likely. The oversold condition may not be able to stem the tide.
Wednesday, April 29, 2009
Long Bond Breakdown
In our view, the most interesting action in the financial markets on Tuesday may have been the US long bond's breakdown to new post-December lows. That said, the breakdown may be an ending, not a beginning.
Readers may recall the conundrum we have been in. We have viewed the December-February decline as a five-wave Elliott Wave pattern. In "Plain English," that meant that it was probably the first leg of a larger decline. On the other hand, non-Elliott technical indicators such as sentiment and momentum suggested that the long bond was washed out or oversold. This would seem to limit -- and to a degree was contradicting -- our Elliott interpretation.
That conflict may be in the process of resolution. Tuesday's new low satisfied the Elliott implications. However, the downtrend from the March high appears to be a wedge. In Elliott Wave terms, that is a "diagonal triangle," which is an ending pattern. 1) If this is correct, then the long bond is close to completing an ABC decline from the December highs. 2) In turn, that would mean that the long bond is moving into position to benefit from the oversold sentiment and momentum background. 3) Finally, that "benefit" may be expressed by a rally that ultimately proves to be a Fibonacci retracement of the entire decline from the December high.
As such, fairly significant Fibonacci and chart resistance is in the 130-133 area. As for support, the "diagonal triangle" is now about 50% as long as the December-February decline and is also obviously in an area of important chart support. Second support is indicated in the 121 area.
Readers may recall the conundrum we have been in. We have viewed the December-February decline as a five-wave Elliott Wave pattern. In "Plain English," that meant that it was probably the first leg of a larger decline. On the other hand, non-Elliott technical indicators such as sentiment and momentum suggested that the long bond was washed out or oversold. This would seem to limit -- and to a degree was contradicting -- our Elliott interpretation.
That conflict may be in the process of resolution. Tuesday's new low satisfied the Elliott implications. However, the downtrend from the March high appears to be a wedge. In Elliott Wave terms, that is a "diagonal triangle," which is an ending pattern. 1) If this is correct, then the long bond is close to completing an ABC decline from the December highs. 2) In turn, that would mean that the long bond is moving into position to benefit from the oversold sentiment and momentum background. 3) Finally, that "benefit" may be expressed by a rally that ultimately proves to be a Fibonacci retracement of the entire decline from the December high.
As such, fairly significant Fibonacci and chart resistance is in the 130-133 area. As for support, the "diagonal triangle" is now about 50% as long as the December-February decline and is also obviously in an area of important chart support. Second support is indicated in the 121 area.
Monday, April 27, 2009
Bulls and Bears. And Pigs?
First things first. In yesterday’s Insights, we neglected to include support and resistance for 10-year yields. Chart and trend resistance is at 3.0%-3.2%. Support is 2.5%-2.4% then 2.1%-2.0%.
On Monday, the S&P 500 declined a relatively modest 1.0%. Common stock breadth was negative by a 3.2:1 ratio, and 17 of the 24 industry groups in the S&P 500 lost ground. These bearish figures are mitigated by the fact that volume was noticeably below Friday’s levels. Also, it was only the 13th decline since the March low, and the intermediate trend is still up.
As we have noted before, the media needs reasons and the apparent “reason” for today’s decline was the outbreak of swine flu. More realistically, we prefer to treat today’s action as part of a consolidation that has been apparent for as much as several weeks. Evidence of that is the fact that near term momentum has been weak for most groups since late March. There is, however, evidence of rotation, so the pressures have been reflected in a time-consuming consolidation rather than a trend-damaging decline. Through it all, intermediate momentum, as well as the dominant trend, have held up well.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support still exists at 828-825. Resistance is at 875-877, then 897-919, then 944.
The unweighted CCI commodity index declined over 2% on Monday. (That’s an event that only happens about 7% of the time.) Prior to that decline, the index appeared to be on the verge of a breakout through its post-October trading range. We view the trading range as a pause within a larger downtrend from last July’s high and, with that in mind, 380-384 is important resistance, while 344-341 is potentially key support.
On Monday, the S&P 500 declined a relatively modest 1.0%. Common stock breadth was negative by a 3.2:1 ratio, and 17 of the 24 industry groups in the S&P 500 lost ground. These bearish figures are mitigated by the fact that volume was noticeably below Friday’s levels. Also, it was only the 13th decline since the March low, and the intermediate trend is still up.
As we have noted before, the media needs reasons and the apparent “reason” for today’s decline was the outbreak of swine flu. More realistically, we prefer to treat today’s action as part of a consolidation that has been apparent for as much as several weeks. Evidence of that is the fact that near term momentum has been weak for most groups since late March. There is, however, evidence of rotation, so the pressures have been reflected in a time-consuming consolidation rather than a trend-damaging decline. Through it all, intermediate momentum, as well as the dominant trend, have held up well.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support still exists at 828-825. Resistance is at 875-877, then 897-919, then 944.
The unweighted CCI commodity index declined over 2% on Monday. (That’s an event that only happens about 7% of the time.) Prior to that decline, the index appeared to be on the verge of a breakout through its post-October trading range. We view the trading range as a pause within a larger downtrend from last July’s high and, with that in mind, 380-384 is important resistance, while 344-341 is potentially key support.
Thursday, April 23, 2009
Another Up Day? Not Really.
On the surface, Thursday was another up day in April (there have been 11 of them so far). All three of the so-called major averages finished the day higher than they were on Wednesday.
Under the surface, however, there is a different story. While the S&P 500 was higher, both the S&P 400 mid-cap and S&P 600 small-cap indexes declined. Breadth was solidly negative for both the “400” and “600.” Moreover, even though total NYSE volume was lower than Wednesday’s level, almost 400 of the stocks in the S&P 1500 declined on higher turnover (versus only 250 that rallied on better volume). All of this suggests that the averages did a poor job of representing the deterioration that actually took place on Thursday.
Thus, our near term focus is still on the idea that the sharp decline into Monday’s low was part of a larger correction. From a momentum perspective, near term oscillators have the potential to remain weak into May. From an Elliott Wave point of view, the decline early in the week was probably the “A” wave of a larger ABC(DE) pattern, or even the first leg of a larger five-wave decline.
However, we also still believe that this near term correction is unfolding within the intermediate uptrend from the March low. Indeed, intermediate momentum is positioned to remain constructive into June, suggesting that the intermediate uptrend will withstand the pressures currently being exerted by the near term pullback. Thus, the decline earlier this week – as well as any follow-through – should prove to be an interruption to an unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
The unweighted CCI commodity index closed at 372 and remains within its post-October trading range. We believe that the decline from last July’s highs will likely prove to be the first leg of a larger downtrend. Thus, once the trading range runs its course, a second downleg will likely be signaled. In that regard, 341-344 is potentially key support.
The long bond closed at 125:07. We continue to respect the idea that the December-February decline will prove to be the first leg of a larger decline. However, as long as the nearby contract holds above key trend and chart support in the 121-125 area, the potential does exist of an attempt to challenge 132-133 or higher.
The US Dollar index closed at 85.41. Chart and trend support is in the 82-84 area. Conversely, there is a good deal of resistance up to about 91-92. . Intermediate momentum is peaking for the index – and versus most of the currencies within the index. Thus, any upcoming breach of support would likely signal a broad-based decline.
Under the surface, however, there is a different story. While the S&P 500 was higher, both the S&P 400 mid-cap and S&P 600 small-cap indexes declined. Breadth was solidly negative for both the “400” and “600.” Moreover, even though total NYSE volume was lower than Wednesday’s level, almost 400 of the stocks in the S&P 1500 declined on higher turnover (versus only 250 that rallied on better volume). All of this suggests that the averages did a poor job of representing the deterioration that actually took place on Thursday.
Thus, our near term focus is still on the idea that the sharp decline into Monday’s low was part of a larger correction. From a momentum perspective, near term oscillators have the potential to remain weak into May. From an Elliott Wave point of view, the decline early in the week was probably the “A” wave of a larger ABC(DE) pattern, or even the first leg of a larger five-wave decline.
However, we also still believe that this near term correction is unfolding within the intermediate uptrend from the March low. Indeed, intermediate momentum is positioned to remain constructive into June, suggesting that the intermediate uptrend will withstand the pressures currently being exerted by the near term pullback. Thus, the decline earlier this week – as well as any follow-through – should prove to be an interruption to an unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
The unweighted CCI commodity index closed at 372 and remains within its post-October trading range. We believe that the decline from last July’s highs will likely prove to be the first leg of a larger downtrend. Thus, once the trading range runs its course, a second downleg will likely be signaled. In that regard, 341-344 is potentially key support.
The long bond closed at 125:07. We continue to respect the idea that the December-February decline will prove to be the first leg of a larger decline. However, as long as the nearby contract holds above key trend and chart support in the 121-125 area, the potential does exist of an attempt to challenge 132-133 or higher.
The US Dollar index closed at 85.41. Chart and trend support is in the 82-84 area. Conversely, there is a good deal of resistance up to about 91-92. . Intermediate momentum is peaking for the index – and versus most of the currencies within the index. Thus, any upcoming breach of support would likely signal a broad-based decline.
Wednesday, April 22, 2009
It’s About Financials -- Again
Wednesday started out on a firm note (the follow-through we allowed for in Tuesday’s blog), but peaked at noon and faded from there. In the end, the S&P 500 fell 0.8%; 18 of the industry groups were lower for the day.
Over the past four days, the S&P has been up twice and down twice. On each of those occasions, the Financials sector was the leader; it was the strongest sector on the up days and the weakest sector on the down days. Given the fact that the sector is only the fifth biggest among the 10 sectors, its influence may now be more psychology than actual size.
The Financial sector’s rally from its March low is clearly corrective, and on Wednesday it breached its post-March trend line, if only briefly. So, in the sense that we have made the case that the S&P is most likely engaged in a bear market rally, the same can be said for Financials. Thus, if the S&P breaks to new lows in coming weeks and months, it seems unlikely that the Financial sector index will provide a positive divergence.
As for the S&P itself, our near term focus remains on the idea that the sharp decline into Monday’s low was probably not a two-day wonder; we still anticipate lower reaction lows. However, we also still believe that the larger degree intermediate uptrend from the March low has some unfinished business. Thus, the decline earlier this week – as well as any follow-through – should prove to be an interruption to an unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
Over the past four days, the S&P has been up twice and down twice. On each of those occasions, the Financials sector was the leader; it was the strongest sector on the up days and the weakest sector on the down days. Given the fact that the sector is only the fifth biggest among the 10 sectors, its influence may now be more psychology than actual size.
The Financial sector’s rally from its March low is clearly corrective, and on Wednesday it breached its post-March trend line, if only briefly. So, in the sense that we have made the case that the S&P is most likely engaged in a bear market rally, the same can be said for Financials. Thus, if the S&P breaks to new lows in coming weeks and months, it seems unlikely that the Financial sector index will provide a positive divergence.
As for the S&P itself, our near term focus remains on the idea that the sharp decline into Monday’s low was probably not a two-day wonder; we still anticipate lower reaction lows. However, we also still believe that the larger degree intermediate uptrend from the March low has some unfinished business. Thus, the decline earlier this week – as well as any follow-through – should prove to be an interruption to an unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
Tuesday, April 21, 2009
Another Shoe to Drop?
Tuesday was a good day. After Monday’s sharp decline, the S&P recovered with a 2.1% rally, which was its best performance in over two weeks. Twenty of the 24 industry groups within the S&P were higher.
On Monday is was Bank of America’s earnings that put pressure on the group; on Tuesday it was Treasury Secretary Geithner saying that banks had “options.” There always has to be a “reason,” or else nobody would buy newspapers. (Oops, nobody is buying papers!)
The bottom line from our perspective is that the post-March rally was probably overdue for a correction (a six week winning streak is not common). Moreover, the rally pattern was clearly corrective, suggesting that a reaction could be sharp. So, in the end, we are hard pressed to believe that the correction will only be a two-day wonder. Probabilities suggest that lower reaction lows are likely. The pullback of the past two days is a 23.6% retrace of the late March-April rally – but we typically expect a minimum 38.2% retracement. Near term momentum, which has been weak since late March, has the potential to remain under pressure into the early days of May. The 10-day CBOE put/call ratio is still more overbought than not. Finally the decline from the highs has an impulsive (trending) look to it, while Tuesday’s recovery has an initial corrective (counter-trend) look.
All of this suggests that the correction from Friday’s high has more life left in it. Thus, while today’s (Tuesday) rally may experience some follow-though, probabilities suggest it will be followed by renewed weakness to lower reaction lows.
Our Elliott Wave opinion is unchanged. We still believe that the April-May rally was the first leg of a larger rally pattern. Thus, the decline of recent days should prove to be an interruption to the larger, unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
On Monday is was Bank of America’s earnings that put pressure on the group; on Tuesday it was Treasury Secretary Geithner saying that banks had “options.” There always has to be a “reason,” or else nobody would buy newspapers. (Oops, nobody is buying papers!)
The bottom line from our perspective is that the post-March rally was probably overdue for a correction (a six week winning streak is not common). Moreover, the rally pattern was clearly corrective, suggesting that a reaction could be sharp. So, in the end, we are hard pressed to believe that the correction will only be a two-day wonder. Probabilities suggest that lower reaction lows are likely. The pullback of the past two days is a 23.6% retrace of the late March-April rally – but we typically expect a minimum 38.2% retracement. Near term momentum, which has been weak since late March, has the potential to remain under pressure into the early days of May. The 10-day CBOE put/call ratio is still more overbought than not. Finally the decline from the highs has an impulsive (trending) look to it, while Tuesday’s recovery has an initial corrective (counter-trend) look.
All of this suggests that the correction from Friday’s high has more life left in it. Thus, while today’s (Tuesday) rally may experience some follow-though, probabilities suggest it will be followed by renewed weakness to lower reaction lows.
Our Elliott Wave opinion is unchanged. We still believe that the April-May rally was the first leg of a larger rally pattern. Thus, the decline of recent days should prove to be an interruption to the larger, unfinished bear market rally pattern.
Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support exists at 828-825. First resistance is 851-857, then 861 and above.
Monday, April 20, 2009
Reversal!
No matter how you slice it, Monday was a broad-based decline. The S&P 500’s 4.3% sell-off was the largest since before the March low. In addition, each of the index’s 24 industry groups lost ground. As a result, Monday was a 90% day. In other words both declining stocks and downside volume were more than 90% of advancing plus declining stocks and upside plus downside volume, respectively. In an overbought market, that is not a good sign.
The S&P closed at the day’s low (832.39). In our weekly Insights (released Monday morning) we indicated that a decline through 835 would lock in the uptrend from the March low as a complete pattern. This, plus the fact that every uptrend line from the March low has been violated, means that Monday’s sell-off was a decisive reversal.
In addition to the decisive break of trend, Monday’s decline means that the structure from the early March low was clearly a corrective Elliott Wave pattern. In “Plain English,” it was a bear market rally pattern. Thus, we need to respect the idea that what we saw is all we are going to get. The potential is that the S&P is in the early stages of a decline to new bear market lows. That said, both medium term momentum and sentiment still have a bullish bias and have the potential to withstand the pressures of a near term decline. Therefore, we will - until proven otherwise - treat this decline as the “B” wave of a larger uptrend. The potential for higher rally highs to follow this sell-off will deteriorate if we see signs of an impulsive decline, but that is not evident yet.
Even allowing for a higher high, Monday’s breach of 835 still means that this (“B” wave) correction could challenge the 796-771 area in the days ahead. A decline much below that range would probably open the door for a full test of March’s 667 low.
The S&P closed at the day’s low (832.39). In our weekly Insights (released Monday morning) we indicated that a decline through 835 would lock in the uptrend from the March low as a complete pattern. This, plus the fact that every uptrend line from the March low has been violated, means that Monday’s sell-off was a decisive reversal.
In addition to the decisive break of trend, Monday’s decline means that the structure from the early March low was clearly a corrective Elliott Wave pattern. In “Plain English,” it was a bear market rally pattern. Thus, we need to respect the idea that what we saw is all we are going to get. The potential is that the S&P is in the early stages of a decline to new bear market lows. That said, both medium term momentum and sentiment still have a bullish bias and have the potential to withstand the pressures of a near term decline. Therefore, we will - until proven otherwise - treat this decline as the “B” wave of a larger uptrend. The potential for higher rally highs to follow this sell-off will deteriorate if we see signs of an impulsive decline, but that is not evident yet.
Even allowing for a higher high, Monday’s breach of 835 still means that this (“B” wave) correction could challenge the 796-771 area in the days ahead. A decline much below that range would probably open the door for a full test of March’s 667 low.
Sunday, April 19, 2009
Weekly Insights
This week's Insights has been released. covering stocks, bonds (and yields), the dollar, and commodities. Please pass it on to anyone you think might be interested. Also, please feel free to send me any feedback or any questions. Speaking of questions, please pass along any questions or topics that you would like answered/discussed in future monthly or weekly Insights. If we get enough interest, we will create a regular section devoted exclusively to readers' interests. The e-mail address is wgmurphyjr@gmail.com
Here is the is the first Insights paragraph: In “Plain English” the uptrend from the March low is still intact, but it would seem that that the indexes are in need of a rest. The S&P is on a six-week winning streak, which is the third longest run since the peak in 2000. A number of near term momentum indicators are at overbought extremes. There are potential near term divergences, but some of those indicators were recently at multi-year highs. Such behavior is often a medium term positive.
Here is the is the first Insights paragraph: In “Plain English” the uptrend from the March low is still intact, but it would seem that that the indexes are in need of a rest. The S&P is on a six-week winning streak, which is the third longest run since the peak in 2000. A number of near term momentum indicators are at overbought extremes. There are potential near term divergences, but some of those indicators were recently at multi-year highs. Such behavior is often a medium term positive.
Thursday, April 16, 2009
Resilience II
In yesterday’s post, we suggested that the rally had been surprisingly resilient and that the potential for further gains seemed to be reasonably good. The resilience and the potential; were evident if Thursday’s action as the S&P gained 1.6% and not one of the 24 industry groups declined.
Still, near term momentum is overbought and a number of near term indicators are diverging. We respect those conditions and believe that the potential for a consolidation remains high.
With that in mind, we have been bullish on the medium term trend and still expect that the S&P 500 has the wherewithal to maintain an underlying bullish bias for another month or more with the potential to penetrate January’s high at 944. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the medium term uptrend.
The bottom line is that, while this rally has already met our expectation that it would be the best advance since the 2007 “bull market” peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
Despite our expectation of higher highs in the weeks ahead, we continue to view the post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. Thus, as is often the case in large degree bear markets, we have to distinguish between structure and strength. So, the expectation of higher highs is not an “all clear” sign. The S&P is challenging first resistance at 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott pattern from the 2007 bull market high is in the books.
Still, near term momentum is overbought and a number of near term indicators are diverging. We respect those conditions and believe that the potential for a consolidation remains high.
With that in mind, we have been bullish on the medium term trend and still expect that the S&P 500 has the wherewithal to maintain an underlying bullish bias for another month or more with the potential to penetrate January’s high at 944. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the medium term uptrend.
The bottom line is that, while this rally has already met our expectation that it would be the best advance since the 2007 “bull market” peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
Despite our expectation of higher highs in the weeks ahead, we continue to view the post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. Thus, as is often the case in large degree bear markets, we have to distinguish between structure and strength. So, the expectation of higher highs is not an “all clear” sign. The S&P is challenging first resistance at 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott pattern from the 2007 bull market high is in the books.
Wednesday, April 15, 2009
Resilience
Wednesday was the second day in a row when merely knowing the closing results (in this case a gain of 1.3%) did not tell the larger story. For the day, the index recorded a lower low and a lower high when compared to Tuesday’s trading. The low occurred early in the morning, extending the downtrend from Monday’s high. However, from that point on, the hourly chart reveals the beginning of a new uptrend, complete with the first higher hourly high since Monday’s peak together with a surge through the hourly downtrend line. So, while the daily data still shows some superficial pressures, the potential for further gains over the very near term would seem to be reasonably good.
In yesterday’s post, we observed that no harm had yet been done to the trend. That is still the case as the uptrend from March’s low has been surprisingly resilient even in the face of recent near term overbought and diverging conditions. Nonetheless, we respect those conditions and still believe that the potential for a (more visible) near term consolidation remains high, even allowing for the aforementioned potential for some follow-through on Wednesday afternoon’s reversal.
We have been – and remain – moderately bullish on the medium term trend and still believe that the S&P 500 has the wherewithal to maintain an underlying bullish bias for another month or more with the potential to penetrate January’s high at 944. This condition probably does much to explain the resilience of the rally to date. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the larger medium term uptrend.
The bottom line is that, while this rally has already met our expectation that it would be the best advance since the 2007 "bull market" peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
We continue to view the post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. As is often the case with large degree bear market rallies, we have to distinguish between structure and strength. So, our expectation of higher highs is not an “all clear” sign. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott Wave pattern from the 2007 bull market high is in the books.
In yesterday’s post, we observed that no harm had yet been done to the trend. That is still the case as the uptrend from March’s low has been surprisingly resilient even in the face of recent near term overbought and diverging conditions. Nonetheless, we respect those conditions and still believe that the potential for a (more visible) near term consolidation remains high, even allowing for the aforementioned potential for some follow-through on Wednesday afternoon’s reversal.
We have been – and remain – moderately bullish on the medium term trend and still believe that the S&P 500 has the wherewithal to maintain an underlying bullish bias for another month or more with the potential to penetrate January’s high at 944. This condition probably does much to explain the resilience of the rally to date. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the larger medium term uptrend.
The bottom line is that, while this rally has already met our expectation that it would be the best advance since the 2007 "bull market" peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
We continue to view the post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. As is often the case with large degree bear market rallies, we have to distinguish between structure and strength. So, our expectation of higher highs is not an “all clear” sign. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott Wave pattern from the 2007 bull market high is in the books.
Tuesday, April 14, 2009
No Harm? No Foul?
On Tuesday, the S&P 500 fell 2.0%, while both breadth and volume were decidedly negative. Moreover, near term momentum is weak and remains positioned to be under pressure for most of the rest of the month.
Even so, Tuesday’s pressure did not challenge support, not did it challenge the dominant March-April uptrend line. And, surprisingly, the point and figure bullish percentage indicators for the S&P 500, 400, and 1500 actually gained ground, and remained unchanged for the S&P 600. The indicator is at post-March highs for all four indexes. So, no harm has been done to the trend. However, the trend is near term overbought and the divergences we have discussed in recent posts are still evident. So, the potential for a near term consolidation remains high.
That said, we remain moderately bullish on the medium term trend and still believe that the S&P 500 has the wherewithal to penetrate its January high at 944. Thus, an expected near term consolidation is expected to be a healthy event within the medium term uptrend. Such a consolidation should, therefore, re-invigorate the market’s technical underpinnings.
The bottom line is that, while this rally is already the best advance since the 2007 peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
Despite our expectation of higher highs in the weeks ahead, we continue to view the rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. So, the expectation of higher highs is not an “all clear” sign. It's a date, not a marriage. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott pattern from the 2007 bull market high is in the books.
Even so, Tuesday’s pressure did not challenge support, not did it challenge the dominant March-April uptrend line. And, surprisingly, the point and figure bullish percentage indicators for the S&P 500, 400, and 1500 actually gained ground, and remained unchanged for the S&P 600. The indicator is at post-March highs for all four indexes. So, no harm has been done to the trend. However, the trend is near term overbought and the divergences we have discussed in recent posts are still evident. So, the potential for a near term consolidation remains high.
That said, we remain moderately bullish on the medium term trend and still believe that the S&P 500 has the wherewithal to penetrate its January high at 944. Thus, an expected near term consolidation is expected to be a healthy event within the medium term uptrend. Such a consolidation should, therefore, re-invigorate the market’s technical underpinnings.
The bottom line is that, while this rally is already the best advance since the 2007 peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
Despite our expectation of higher highs in the weeks ahead, we continue to view the rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. So, the expectation of higher highs is not an “all clear” sign. It's a date, not a marriage. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott pattern from the 2007 bull market high is in the books.
Monday, April 13, 2009
Still Ticking
On Monday, the S&P 500 spent virtually the entire day in negative territory. However, a final hour spurt allowed the index to finish with a 0.25% gain. Nonetheless, advance/decline ratios were negative for the S&P 500 (large cap), S&P 400 (mid cap), and S&P 600 (small cap) indexes, but upside volume comfortably outpaced downside volume. Moreover, the early weakness never threatened support or our dominant uptrend line.
We remain moderately bullish on the medium term trend. Medium term momentum is positioned to remain constructive into late May, early June. Trend following sentiment surveys are reversing to up, from down. And this rally has already retraced a significant portion of the January-March decline. Thus, we remain of the opinion that the S&P has the wherewithal to penetrate its January high at 944. That said, short term momentum is overbought and diverging, which suggests that a consolidation is due -- even overdue. Such a consolidation is expected to be a healthy event, and would re-invigorate the market’s technical underpinnings.
The bottom line is that, while this rally is already the best advance since the 2007 peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
We continue to view this post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. So, higher highs should be viewed with that in mind. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott Wave pattern from the 2007 bull market high is in the books.
We remain moderately bullish on the medium term trend. Medium term momentum is positioned to remain constructive into late May, early June. Trend following sentiment surveys are reversing to up, from down. And this rally has already retraced a significant portion of the January-March decline. Thus, we remain of the opinion that the S&P has the wherewithal to penetrate its January high at 944. That said, short term momentum is overbought and diverging, which suggests that a consolidation is due -- even overdue. Such a consolidation is expected to be a healthy event, and would re-invigorate the market’s technical underpinnings.
The bottom line is that, while this rally is already the best advance since the 2007 peak, still higher highs are likely.
Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.
We continue to view this post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. So, higher highs should be viewed with that in mind. First resistance appears to be 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott Wave pattern from the 2007 bull market high is in the books.
Weekly Insights
The weekly Insights is in the process of being e-mailed. If you would like a copy, please e-mail wgmurphyjr@gmail.com to receive a copy.
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Thursday, April 9, 2009
No Holiday Here
Our monthly April Insights is available. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.
Thursday was a bit of a surprise, at least to us. In yesterday’s post we suggested that today was likely to be a slow day, reflecting the expected holiday-related trading. Instead, the S&P rallied 3.8% and volume hit its highest level in more than two weeks, resulting in the fifth 90% up day since the rally began in early March. (In order to be a 90% up day, advancing issues must represent at least 90% of the total of advancing and declining stocks AND up volume must be at least 90% of the total of up and down volume.)
Obviously, the uptrend from the March low remains intact. However, there are negative divergences. Not the least of these is momentum, which has had a bearish bias and still has the potential to remain under pressure for most of the rest of the month.
We have made the case that the Elliott Wave pattern from the March low is more corrective than not. That said, the rally from the March 30 low can be counted as a legitimate five-wave structure, but it may actually be diagonal triangle, which is an ending pattern. This, plus the momentum divergence referred to above, suggests that the rally may need to consolidate its gains. We chose the word “consolidate” rather than “reverse” out of respect for the fact that medium term momentum is constructive and appears to have the potential to maintain a bullish bias into late May or early June. This implies further strength to 863-883 and perhaps beyond, intervening pullbacks along the way not withstanding. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high.
In sum, we have been of the opinion that this rally from the March low had the potential to be the best rally since the 2007 peak. That goal has been achieved, but still higher highs are likely.
Nearby support is at 815-817. A decline through that range will confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting that rally as a complete pattern, or merely the first leg of a larger, unfinished uptrend. As such, the post-March uptrend deserves the benefit of the doubt.
Thursday was a bit of a surprise, at least to us. In yesterday’s post we suggested that today was likely to be a slow day, reflecting the expected holiday-related trading. Instead, the S&P rallied 3.8% and volume hit its highest level in more than two weeks, resulting in the fifth 90% up day since the rally began in early March. (In order to be a 90% up day, advancing issues must represent at least 90% of the total of advancing and declining stocks AND up volume must be at least 90% of the total of up and down volume.)
Obviously, the uptrend from the March low remains intact. However, there are negative divergences. Not the least of these is momentum, which has had a bearish bias and still has the potential to remain under pressure for most of the rest of the month.
We have made the case that the Elliott Wave pattern from the March low is more corrective than not. That said, the rally from the March 30 low can be counted as a legitimate five-wave structure, but it may actually be diagonal triangle, which is an ending pattern. This, plus the momentum divergence referred to above, suggests that the rally may need to consolidate its gains. We chose the word “consolidate” rather than “reverse” out of respect for the fact that medium term momentum is constructive and appears to have the potential to maintain a bullish bias into late May or early June. This implies further strength to 863-883 and perhaps beyond, intervening pullbacks along the way not withstanding. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high.
In sum, we have been of the opinion that this rally from the March low had the potential to be the best rally since the 2007 peak. That goal has been achieved, but still higher highs are likely.
Nearby support is at 815-817. A decline through that range will confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting that rally as a complete pattern, or merely the first leg of a larger, unfinished uptrend. As such, the post-March uptrend deserves the benefit of the doubt.
Wednesday, April 8, 2009
No Changes as Holiday Week Winds Down
Our monthly April Insights has been released. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.
Wednesday was a recovery day. The S&P bounced back nicely from Tuesday’s “nasty” performance with a 1.2% rally on solid breadth (four gainers for every loser). Nine of the 10 sectors were higher; telecom was the exception.
Not surprisingly, nothing has changed – and change does not appear imminent for the remainder of this week. The basic uptrend from the March low remains intact even as near term momentum is weak and has the potential to remain so for most of the rest of the month. Volume has fallen off; average daily volume was 6.3 billion shares last week, versus 5.3 billion so far this week. Thursday is likely to be a slow day and the market is closed on Friday, so the status is likely to remain quo.
We have made the case that the Elliott Wave pattern from the March low is more corrective than not. Now, it is increasingly clear that the decline from the April 2 peak is also counter-trend. This is viewed favorably since non-Elliott indicators, such as intermediate momentum, are constructive (and improving). Thus, it is important to reiterate our observation that the post-March rally has already reversed the decline from the January high. In turn, this implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. Most importantly, a rally through that level would indicate that the entire decline from the bull market peak had been reversed.
In sum, we remain of the opinion that, even though this may ultimately prove to be a bear market rally, it still has the potential to be the best rally since the 2007 peak.
Nearby support is at 815-817, but it will take a decline through 779 to confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Further weakness toward 777-735 would be likely.
Wednesday was a recovery day. The S&P bounced back nicely from Tuesday’s “nasty” performance with a 1.2% rally on solid breadth (four gainers for every loser). Nine of the 10 sectors were higher; telecom was the exception.
Not surprisingly, nothing has changed – and change does not appear imminent for the remainder of this week. The basic uptrend from the March low remains intact even as near term momentum is weak and has the potential to remain so for most of the rest of the month. Volume has fallen off; average daily volume was 6.3 billion shares last week, versus 5.3 billion so far this week. Thursday is likely to be a slow day and the market is closed on Friday, so the status is likely to remain quo.
We have made the case that the Elliott Wave pattern from the March low is more corrective than not. Now, it is increasingly clear that the decline from the April 2 peak is also counter-trend. This is viewed favorably since non-Elliott indicators, such as intermediate momentum, are constructive (and improving). Thus, it is important to reiterate our observation that the post-March rally has already reversed the decline from the January high. In turn, this implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. Most importantly, a rally through that level would indicate that the entire decline from the bull market peak had been reversed.
In sum, we remain of the opinion that, even though this may ultimately prove to be a bear market rally, it still has the potential to be the best rally since the 2007 peak.
Nearby support is at 815-817, but it will take a decline through 779 to confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Further weakness toward 777-735 would be likely.
Tuesday, April 7, 2009
A Nasty Day
April's Insights has been released. To request a copy, please e-mail me at wgmurphyjr@gmail.com.
Tuesday was nasty. The S&P’s 2.4% decline was the second largest since the current rally from the March low got under way. All 10 S&P sectors lost ground, and total breadth was negative by a ratio of about 15:2. Volume was negative by almost 5:1. Even though total volume was a bit lower than Monday’s, over one-third of the all NYSE common stocks declined on higher volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,
Despite these difficulties, the hourly P&F uptrend line from the March low remains intact, and first support at 779 has not been challenged.
From an Elliott Wave perspective, many analysts are referring to the rally to date as “wave 1.” To us, the pattern from the March low is more corrective than not. Thus, our thoughts that this is a bear market rally remains valid. That said, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete five-wave decline from last May’s high. This (plus the rally through 833) implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.
As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Through 779, further weakness toward 777-735 would be likely.
Tuesday was nasty. The S&P’s 2.4% decline was the second largest since the current rally from the March low got under way. All 10 S&P sectors lost ground, and total breadth was negative by a ratio of about 15:2. Volume was negative by almost 5:1. Even though total volume was a bit lower than Monday’s, over one-third of the all NYSE common stocks declined on higher volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,
Despite these difficulties, the hourly P&F uptrend line from the March low remains intact, and first support at 779 has not been challenged.
From an Elliott Wave perspective, many analysts are referring to the rally to date as “wave 1.” To us, the pattern from the March low is more corrective than not. Thus, our thoughts that this is a bear market rally remains valid. That said, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete five-wave decline from last May’s high. This (plus the rally through 833) implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.
As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Through 779, further weakness toward 777-735 would be likely.
Monday, April 6, 2009
Stocks Retreat; Gold Reverses its Uptrend
Our monthly April Insights was released today and is being e-mailed out to our lists today and tomorrow. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.
On Monday, the S&P broke a four-day winning streak with a loss of 0.8%. Common stock breadth was negative by a ratio of about 2.8:1. Even though total volume was a bit lower than that on Friday, almost twice as many stocks fell on increased volume than rallied on increased volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,
Despite these difficulties, no uptrends were violated and the “cup and handle” base that we referred to in a previous post remains intact.
From an Elliott Wave perspective, we have suggested that the overall pattern from the March low has been increasingly difficult to count impulsively. It remains more corrective than not, so our thoughts that this is a bear market rally remains valid. However, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete pattern from last May’s high. This, plus the breakout through 833, implies further potential to at least 863-883, which is both Fibonacci and fairly substantial resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.
As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger rally pattern. Further weakness toward 777-735 would be likely.
Consumer Discretionary, Financials, Industrials, Materials, and Tech are showing relative strength.
Finally, gold broke both important support and an important trend line today. This tends to confirm that the rally from last October’s low has been reversed. Our assumption until proven otherwise is that those October lows near 680 on the nearby futures contract will be tested.
On Monday, the S&P broke a four-day winning streak with a loss of 0.8%. Common stock breadth was negative by a ratio of about 2.8:1. Even though total volume was a bit lower than that on Friday, almost twice as many stocks fell on increased volume than rallied on increased volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,
Despite these difficulties, no uptrends were violated and the “cup and handle” base that we referred to in a previous post remains intact.
From an Elliott Wave perspective, we have suggested that the overall pattern from the March low has been increasingly difficult to count impulsively. It remains more corrective than not, so our thoughts that this is a bear market rally remains valid. However, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete pattern from last May’s high. This, plus the breakout through 833, implies further potential to at least 863-883, which is both Fibonacci and fairly substantial resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.
As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger rally pattern. Further weakness toward 777-735 would be likely.
Consumer Discretionary, Financials, Industrials, Materials, and Tech are showing relative strength.
Finally, gold broke both important support and an important trend line today. This tends to confirm that the rally from last October’s low has been reversed. Our assumption until proven otherwise is that those October lows near 680 on the nearby futures contract will be tested.
Thursday, April 2, 2009
Breakout!
In our March monthly “Insights,” we made the case that the best rally since 2007 was “in sight.” That goal has not yet been achieved, but Thursday’s rally was a solid step in the right direction. The 2.9% gain was aided by increased breadth and volume ratios, as well as an increase in total volume. Moreover, the index broke out through last week’s high, which can be viewed as the completion of a “cup and handle” base. It may also ultimately prove to be an “inverted head and shoulders” bottom. Both formations imply higher rally highs.
If there is a problem, it comes from momentum. Near term oscillators, which had been deteriorating against most stocks since last week, have begun to improve again, but are doing so from an overbought condition, rather than a more normal (and healthier) oversold position. This may prove to be near term impediment.
For Elliott aficionados, Thursday’s action makes the overall pattern from the March low more difficult to count, so we may need to give it some more time to let the picture clear up. That said, there are three important points of note. First, the overall pattern is more corrective than not, so our thoughts that this is a bear market rally remains valid. Second, the aforementioned behavior of near term momentum suggests that the pullback from last week’s high to Monday’s low was an interruption within a post-March “A” wave, not a “B” wave of the same degree as we thought. Finally – and most importantly – the extent of this rally is enough to satisfy the minimum requirements for a complete pattern from last May’s high. There will be more on this in our April long term “Insights,” which will be released in coming days.
With the breakout through 833, further nearby potential is to at least 863-883, which is both Fibonacci and fairly substantial resistance. However, a 38.2%-50% retracement of the decline from last May’s high implies that this bear market rally could ultimately challenge of 945-1055. Most of the nearby support is in the 800-780 range.
If there is a problem, it comes from momentum. Near term oscillators, which had been deteriorating against most stocks since last week, have begun to improve again, but are doing so from an overbought condition, rather than a more normal (and healthier) oversold position. This may prove to be near term impediment.
For Elliott aficionados, Thursday’s action makes the overall pattern from the March low more difficult to count, so we may need to give it some more time to let the picture clear up. That said, there are three important points of note. First, the overall pattern is more corrective than not, so our thoughts that this is a bear market rally remains valid. Second, the aforementioned behavior of near term momentum suggests that the pullback from last week’s high to Monday’s low was an interruption within a post-March “A” wave, not a “B” wave of the same degree as we thought. Finally – and most importantly – the extent of this rally is enough to satisfy the minimum requirements for a complete pattern from last May’s high. There will be more on this in our April long term “Insights,” which will be released in coming days.
With the breakout through 833, further nearby potential is to at least 863-883, which is both Fibonacci and fairly substantial resistance. However, a 38.2%-50% retracement of the decline from last May’s high implies that this bear market rally could ultimately challenge of 945-1055. Most of the nearby support is in the 800-780 range.
Wednesday, April 1, 2009
S&P Rallies Through Downtrend Line
Wednesday was a solid day for the S&P 500. Although it opened sharply lower, the sell-off lasted less than an hour, allowing the index to recover – and then some. The day ended with a 1.7% gain and NYSE common stock gainers outpaced the losers by a solid 7:2 ratio. All of this allowed the index to rally through the downtrend line from last week’s high and mitigate the damage done by Monday’s sharp decline.
However, we hesitate to say that Wednesday’s rally decisively reversed the downtrend of recent days. Momentum is still weak and the put/call ratio is still overbought. So, while today’s action was promising, the market may still need more time to correct March’s gains before it is positioned to extend the bear market rally. This suggests that the index could be range-bound in coming days.
For Elliott fans, today’s rally not only broke the downtrend from last week’s high, it also did much to suggest that the decline itself is a corrective (counter trend) structure. In turn, that corrective structure helps confirm our thoughts that an “A” wave rally ended last week, the index is now in a “B” wave pullback, and a post-March “C” wave to new bear market rally highs is still to come.
For now, we see no need to make adjustments to the support and resistance levels indicated in recent posts. First (chart (and Fibonacci) support is at 775-766 (with particular focus on 773-772), followed by 750, and 730-725. Last Thursday’s 833 high is resistance.
However, we hesitate to say that Wednesday’s rally decisively reversed the downtrend of recent days. Momentum is still weak and the put/call ratio is still overbought. So, while today’s action was promising, the market may still need more time to correct March’s gains before it is positioned to extend the bear market rally. This suggests that the index could be range-bound in coming days.
For Elliott fans, today’s rally not only broke the downtrend from last week’s high, it also did much to suggest that the decline itself is a corrective (counter trend) structure. In turn, that corrective structure helps confirm our thoughts that an “A” wave rally ended last week, the index is now in a “B” wave pullback, and a post-March “C” wave to new bear market rally highs is still to come.
For now, we see no need to make adjustments to the support and resistance levels indicated in recent posts. First (chart (and Fibonacci) support is at 775-766 (with particular focus on 773-772), followed by 750, and 730-725. Last Thursday’s 833 high is resistance.
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