The Managing Partner of Walter Murphy Global Advisors, LLC, Walter has followed the financial markets professionally for 32 years, including 25 years as a senior technical analyst at a major Wall Street firm. Walter maintains a significant personal data base and is a recognized expert in the Elliott Wave Principle.
Walter has a BA from the College of the Holy Cross and an MBA from Babson College. He holds the CFA designation and sits on the board of directors for the American Association of Professional Technical Analysts (AAPTA).
The S&P 500 fell 0.9% on Tuesday, taking back almost all of Monday’s gain. Breadth was negative by almost 2:1 and volume expanded by 20%. Downside volume exceeded upside turnover for the first time in six days. Even so, our measure of buying interest has deteriorated to its lowest level since January. In that regard, it seems that investors were not very attracted to stocks during June.
Indeed, the S&P gain only 0.02% for the month and the DJIA fell 0.6%. So, even though Wednesday’s headlines may highlight the fact that the “500” just finished its best quarter since 1998, that stat camouflages the fatigue that set in during June.
S&P 500 with Quarter Over Quarter Returns That fatigue is reflected by the fact that intermediate momentum peaked two weeks ago and, at this early vantage point, seems positioned to remain under pressure through the third quarter. Thus, we continue to think that any near term strength will be unsustainable. Even if the indexes make a run back to their June highs, the result will likely be more and greater negative divergence than those that already exist. Those divergences, in turn, would likely be a prelude to an even more obvious decline.
First resistance at 927 is still intact. Next resistance is indicated at 935-936, followed by 956. We continue to view 879-866 as tactical support; a breach of that range would open the door for further weakness toward at least 812-777.
Editor’s note: A special Insight on Inflation was sent to those on our distribution lists on Friday. Earlier today, we began e-mailing a Short Term Review of the markets. If you do not receive the STR by tomorrow morning, e-mail us at wmgallc@gmail.com.
The S&P 500 rallied 0.9% on Monday on decent breadth and low volume. Near term momentum is now positive for a majority (14) of the 24 S&P industry groups. Higher rally highs are anticipated.
Several days ago, we wrote about the conundrum between the DJIA and the S&P. The DJIA’s June sell-off was a reasonably clean five-wave pattern, while the S&P’s decline had much more of a corrective look. That “corrective look” was confirmed on Monday when the S&P rallied through the 927.09 recovery bounce on June 19. This locked in a three-wave decline. Moreover, the S&P has retraced almost 61.8% of its June sell-off, while the DJIA has yet to retrace 50% of that same decline. Thus, it is not inconceivable that the S&P will be able to challenge its March-June rally high, while DJIA fails to do the same.
All of this suggests that a challenge of the highs will be accompanied by more and greater negative divergences than those that already exist. Thus, we continue to think that any near term strength will be a late stage move (an ending) rather that the beginning of an important new rally.
First resistance for the "500" at 927 is still nominally intact. In anticipation of higher highs, next resistance is indicated at 935-936, followed by 956. We will continue highlighting tactical support in the 879-866 range; a breach of that range would open the door for further weakness toward at least 812-777.
The S&P 500 has rallied for three straight days, with each day better than the previous. On Thursday, the index gained 2.1%, which was its best performance since June 1. Breadth was solidly positive and total volume even expanded (albeit by a modest amount). In addition, there are signs that near term momentum indicators will bottom in the next day or two. All of this indicates that the index is positioned to dig in its heels for a while.
In yesterday’s post, we pointed out that both the DJIA and S&P were positioned for a rally, despite their different wave structures. Today’s surge was a reflection of that, and the aforementioned near term momentum condition suggests that this rally may have some staying power. This, combined with potential end-of-quarter window dressing and a possible (and not uncommon) holiday bullish bias, suggests that the indexes may be able to “hang in there” into mid July.
S&P 500 with Near Term Momentum That said, the action of the past several days does not change the overall counter-trend structure of the post-March rally, nor has it changed the deteriorating medium term momentum condition, nor does it erase what appears to be a declining 22-week cycle. All told, the S&P may be able to hold tactical support at 879-866, but we would view any further strength as an ending, not a beginning. Thus, even if the S&P manages to challenge its June high in the weeks ahead, such a rally will like only serve to create greater (in terms of both quantity and quality) divergences than those that already exist. Such a rally, therefore, would arguably be suitable only for the most nimble of traders.
As a result – and almost by definition – we will continue to use 927 as first resistance; followed by 935-936, then 956. Similarly, we will continue highlighting tactical support in the 879-866 range. A breach of that range would open the door for further weakness toward at least 812-777.
Once again, we had a record number of hits and a record number of individuals on the blog. In addition, we have received comments expressing the view that our blog has become their favorite. We appreciate the reaction and the feedback. Thank you.
On Wednesday, the S&P 500 gained 0.7%. The gain could have been better, but the index fell fairly sharply following what can only be described as a widely expected announcement from the Fed following its two day meeting. Nonetheless, breadth was solidly positive, as was the up/down volume ratio. That said, total volume fell for the second consecutive day even as near term momentum remains negative. This combination suggests that we view the “rally” of the past two days with suspicion.
Overall, the decline from the June 11 high presents us with a bit of a conundrum. The daily chart for the DJIA can easily be counted as a five wave structure. This suggests that the downtrend of the past two weeks is the first leg of a larger downtrend. However, a similar chart for the S&P 500 cannot be counted in a similar fashion. This nominally leaves open the possibility of a coming test of the June high.
Both charts would seem to have one thing in common. They suggest that the indexes are positioned for a short-lived rally. Moreover, a number of momentum indicators have move to the oversold side of neutral.
As a result, we will stick with our comments of recent posts. We will continue to use 927 as first resistance; followed by 935-936, then 956. Similarly, we will continue highlighting support in the 879-866 range. A breach of that range will be of tactical importance so if 879-866 is violated, it would not be a stretch to look for further weakness toward at least 812-777.
On Tuesday the S&P 500 gained 0.2%, which made it the only one of the three so-called major averages to rally. NYSE common stock breadth was modestly negative, but upside volume was solidly greater than downside turnover. This suggests that Tuesday was a day for the big cap stocks.
This action did nothing to disrupt our expectations or our “count”, so we will continue to use 927 as first resistance; followed by 935-936, then 956. Similarly, we will continue highlighting support in the 879-866 range. A breach of that range will be of tactical importance so if 879-866 is violated, it would not be a stretch to look for further weakness toward at least 812-777.
Tonight, we thought it might be more important to talk about 10-year yields. In recent weeks we have suggested that the yield rally had an impulsive (trending) look to it, implying that the December lows may have been historic. In that regard, we have stated that the yield decline from June’s high could be counted as a fourth wave in Elliott Wave terms. All of this is still our view. Thus, the decline of recent days from 3.936% to 3.640% is not yet “normal;” it is still substandard.
10-Year Yields with Fibonacci Retracements of March-June Rally Under normal circumstances, we would expect a fourth wave decline from the June 12 high to retrace 38.2%-50% of the entire rally from the March 18 low (at 2.533%). That implies a move into the 3.4%-3.23% range. A decline much lower than that range would suggest that the current decline may threaten to correct the entire rally from last December’s low. Conversely, an inability to seriously test even the upper end of that range would mean that the post-December uptrend is arguably even more important – and powerful – than we have been giving it credit for.
On Monday the S&P 500 suffered its largest loss in two months with a decline of 3.1%. Although total volume declined slightly from Friday’s level, Monday was the second 9:1 down day in a week (i.e., declining stocks represented 93% of NYSE common stocks that changed price, while down volume was 94% of the sum of up and down volume). Among the 24 S&P industry groups, only Telecom Services managed to eke out a gain.
In our last two posts, we suggested that a relief rally would only be of a few days duration, and today’s decline clearly and decisively reversed the Wednesday-Friday bounce. More importantly, the decline from Friday’s high was another five wave pattern, following up on the June 11-17 five wave decline. While this second five could be only a “C” wave as part of a larger ABC counter trend decline, the risk is that today’s decline might prove to be the opening salvo in a larger five wave decline. We say that because the intermediate deterioration has been rapid. For example, a large plurality of the stocks in the S&P 500 saw their weekly MACD take on a bearish bias last week. Similarly, a plurality of the 24 industry groups saw their weekly Coppock Curve turn down. It is fairly likely that a majority of the stocks and groups will see bearish momentum reversals by the end of this week. If so, this would imply that the S&P is in the early stages of a potential 3-5 month correction/consolidation. Thus, we need to respect the idea that today’s decline was the opening salvo of a third wave, not a “C” wave.
Weekly MACD Position of S&P 500 Stocks Last week’s rally carried to 927 (right in the middle of our 924-930 objective), so we will use that a first resistance; beyond that, resistance is indicated at 935-936, then the 956 rally high.
S&P 1500 Sector Sum Indicator The current decline should be at least as long as the June 11-17 decline but, for now, we will continue highlighting support in the 879-866 range. A breach of that range will be of tactical importance. In that regard, it may prove to be significant that the a-d line for the S&P 500 (as well as those for the S&P 400 and S&P 600) has already violated its equivalent of 87-866. So has the Sector Sum point and figure indicator for the S&P 1500. Thus, if 879-866 is violated, it would not be a stretch to look for further weakness toward at least 812-777.
Editors Note: Yesterday I gave a presentation to the Market Technician’s Association entitled “Elliott Wave in Today’s Markets.” I will be happy to e-mail the Power Point file (30 slides) to anyone who cares to e-mail me (wgmurphyjr@gmail.com).
On Thursday the S&P 500 broke a three-day losing streak with a rally of 0.8%. Breadth was modestly positive and upside volume was 70% higher than downside turnover. However, total volume fell to its lowest level of the week, and our model of buying interest is at its lowest level since January. In addition, near term momentum is still weak and is positioned to remain that way into the final days of the month.
S&P 500 with Daily Coppock Curve In our previous post, we suggested that we could count five waves down from June’s, peak; as such, a relief rally of only a few days duration would not be surprising. Yesterday’s rally fits in with that scenario and, in fact, was high enough to lock in the decline from the June 11 high to the June 17 low as a complete pattern.
On an hourly chart, both the Elliott Wave fourth wave of prior degree and a 38.2%-50% retracement occur within the 924-930 range. That range would, therefore, seem to be important resistance and a reasonable objective. Beyond that, resistance is indicated at 935-936, then the 956 rally high.
If we are correct about the five-wave decline from the June 11 high, then that decline should be the first leg of a larger unfinished downtrend. A second leg down should be at least as long as the first but, for now, we will continue highlighting support in the 866-879 range. A breach of that range will be of tactical importance in that it will be a virtual confirmation that the index was engaged in an intermediate (3-5 month) correction.
On Wednesday the S&P 500 fell only 0.1%, but that was enough to run the current losing streak to three days. Moreover, there is a case to be made that the internals were more negative than the averages would suggest. Losing common stocks outpaced winners by about 10%, but downside volume outpaced upside volume by a 5:2 ratio. The S&P’s bullish percent had its biggest loss since February even as the index spent the entire day below what was the dominant uptrend line. All of this continued to increase the evidence that the post-March rally is history.
S&P Bullish Percentage
With that in mind, we can count five waves down from the peak and hourly momentum is oversold and improving. This suggests that, while lower lows are likely in the weeks ahead, a relief rally of only a few days duration may be close at hand.
Support is the 866-879 range; a breach of that range will be of tactical importance in that it will be a virtual confirmation that the index was engaged in an intermediate (3-5 month) correction. Resistance is at 956.
Correction: in our previous blog, we noted that near term momentum reversed “from up to down for 23 of the 27 S&P industry groups… .” It was actually 23 of the 24 industry groups.
Tuesday’s 1.3% decline was not as intense or as broad-based as Monday’s, but it did extend the new downtrend and added a few more negative developments. Volume remained below its 21-dma, but increased. Thus, the market has now experienced consecutive “distribution” days for the first time in over a month. As a result, 222 of the stocks in the “500” fell on increased volume, versus the 39 that rose on higher turnover. And, now, all 24 industry groups are under near term momentum pressure – with 22 of those still on the overbought side of neutral. Finally, the index closed well below the dominant March-June uptrend line.
All of this increases the likelihood that the 22-week cycle has reversed to the downside. If so, the resulting pressures should persist into at least early August.
S&P 500 with Ideal 22-Weak Cycle Support is the 866-879 range; a breach of that range will be of tactical importance in that it will be a virtual confirmation that the index was engaged in an intermediate (3-5 month) correction. Resistance is at 956.
Monday’s negatives were almost too many to enumerate. In no particular order they include: a 9:1 down day, a breach of our first support/trading stop at 926, a near term momentum reversal from up to down for 23 of the 27 S&P industry groups, a triple-bottom P&F sell on the S&P 500 (using a 5x3 chart), and a reversal by the “500’s” bullish percent indicator through its 10-dama. There are more, but we think you get the point.
S&P 500 There is one missing ingredient. The S&P has not violated its dominant trend line. For us, that trend line begins on March 17, not March 6, although we would not quibble with either March 20 or March 30 as a starting point. That trend line is currently at 919.82 and rising at 2.74 points per day. A close below that trend line – and preferably an entire day below it – would be the last confirming signal that both the post-March trend and the 22-week cycle had reversed to the downside. In coming blogs, we will report on the S&P relative to this trend line.
Note that in the above list of negatives, we did not include intermediate momentum. We have made the case that our primary intermediate oscillator had the potential to maintain a bullish bias into late June or early July. Thus, it was and is conceivable that a near term peak would begin to have negative intermediate implications. While it will take a close below 896 this week to mathematically turn the weekly Coppock Curve down for the first time since March, we would not be surprised if a substantial plurality of the 27 industry groups experience their own weekly reversals this week, even if the S&P itself does not. We would consider anything more than 10 group reversals to be “substantial.”
From an Elliott Wave perspective, we can now count five waves up from the March low. BUT the structure is internally corrective. If this hold firm, we will need to respect the idea that the “new bull market” was an inherently weak diagonal triangle pattern. That, in turn, would suggest that the “new bull market” is/was actually the “C” wave of an ABC bear market rally that has been in play since November’s low. We’ve said it before, and we’ll say it again: Be careful out there.
Possible Elliott Wave Bear Market Rally With the break of 926, our focus is now on the 866-879 range. If the former was a first support/trading stop level, a breach of the latter would have more intermediate significance, especially if our Elliott Wave comment proves to be accurate. In a similar vein, yesterday’s reversal suggests that we reduce our resistance focus to 956, from 982.
Near term momentum has turned down for a majority of groups, and our first spt/trading stop was violated. Lower lows, therefore, are likely in the days ahead.
There will be no detailed blog tonight. We hope to expand on the above thoughts by mid morning tomorrow,
A new Short Term Review, covering stocks, bonds (yields), the dollar, gold, and oil is being e-mailed. If you do not receive it by Monday evening or are not on my list, send me an e-mail to that effect (wgmurphyjr@gmail.com).
On Thursday, the S&P rallied 0.6%.Both the breadth ratio and the up/down volume ratio were moderately positive.Total volume increased slightly, but remains below its 21-dma.Internally, 485 common stocks rallied on increased volume, versus the 266 that fell on greater turnover.
Yesterday’s rally allowed the S&P to close at a new rally high.However, neither the daily cumulative a-d line nor our accumulation model confirmed those highs.Moreover, the S&P has not been able to put two consecutive up days together since June 2, which we view as something of an “internal peak” (i.e., the last time that most indicators confirmed the rally).
Putting all of this together, we would not be surprised if near term momentum peaks on Friday.Our preferred oscillator (the daily Coppock Curve) is already showing negative divergences and has not been in oversold territory since March.Overall, we would not be surprised if new short term pressures last for 2-3 weeks or more.If so, this would likely begin to put pressure on intermediate momentum and the post-March rally itself at risk.Thus, rallies in the days ahead are likely to along the lines of a last gasp, not a re-acceleration.Be careful out there.
That said, we still need to see a reversal of momentum, together with a breach of the dominant trend line and a violation of 923 (our first support/trading stop level), before a potentially significant top would be indicated. Our resistance focus remains on 982.
Editorial comment: As we write this, the TV is on in the background and is tuned to a business channel.Among the “experts”, one said that Thursday’s trade came close to generating a Dow Theory buy signal; another said that the market had rallied 40% from the lows and was down 40% from the highs, so it is in the middle of the bear market range.Both “experts,” were wrong, showing a clear lack of understanding of the technicals and/or a clear misunderstanding of simple math.
Long Bond with Medium Term Momentum
As for the long bond, yesterday may have been an upside reversal day.The continuous contract closed higher after recording both a lower low and a higher high than those seen on Wednesday.Moreover, the bond is clearly oversold.All of this suggests the potential for a pretty good rally.
In Elliott Wave terms, the bear case is that a coming rally will only be a fourth wave from the highs, suggesting that a coming rally will carry to no higher than 119:20-122:04.If the long bond fails to penetrate that range, then breaks to new lows, the result will likely be a clean five wave decline from the highs.That, in turn, would be viewed as the first leg of a larger decline and increase the potential that an historic top is in place.By contrast, if the aforementioned range is violated, then the bull argument would be that the decline from last December’s high was only a counter-trend move, and would allow for a more substantial rally.Support for now is obviously Thursday’s low.
Due to a very long day, there will be no comment tonight. I expect to put one out by mid Friday morning. A Short Term Review will be e-mailed on Sunday night or Monday.
From our perspective, the most important event on Wednesday was the breakdown by the long bond. However, before we address that, a quick review of the stock market is in order. The S&P 500 fell 0.3%. Breadth was negative by a 7:5 ratio. Total volume remained below its 21-dma despite a 21% increase over Tuesday’s level. As a result, 211 of the 500 stocks in the S&P declined on higher volume. All of this suggests that the near term pressures continue to mount. That said, we still need to see a reversal of momentum, together with a breach of the dominant trend line and a violation of 923 (our first support/trading stop level), before a potentially significant top would be indicated. Beyond the recent high, our resistance focus remains on 982.
Meanwhile, the nearby contract for the long bond traded to as low as 112:00. This is a level not seen since late 2007. By definition, therefore, the double-bottom in 2008 that we have highlighted in a number of comments has been violated. In turn, this means that the entire uptrend from the June 2007 low (105:17) has been reversed. Since that uptrend marked the “thrust” following the completion of the 2003-2007 triangle, it is likely that an even larger uptrend has been reversed. Moreover, the fact that the 2008-2009 decline has retraced more that 61.8% of the 2007-2008 rally suggests that the aforementioned 105:17 low will be violated in due course.
We have been suggesting that the uptrend from the 2000 low – and perhaps from the 1981 secular low – was at risk. Thus, we had to respect the fact that an historic top was in place. Wednesday’s action increases that possibility.
Next support could be on the order of 110:20, then 108:20. Nearby resistance is in the 114:14-117:26 range.
In many ways, Tuesday was the opposite of Monday. The S&P 500 gained only 0.4%, but the day’s internals were relatively strong. Common stock breadth was positive by a 4:3 ratio, which was its second best performance in the past six days. Upside volume outpaced downside volume by a similar ratio.
However, total volume has been below its 21-dma for 16 straight days, which is its longest such string since last August. The total volume difficulties are aggravated by signs that near term momentum is peaking and by the fact that a sizable number of stocks have pulled a good distance away from their rally highs. Near term momentum has been constructive since late May and has, therefore, been in sync with medium term oscillators, which have had a bullish bias since March. But it now appears that the near term oscillators will peak in the next day or two. If so, this will be the second lower high since the “good overbought” condition recorded in late March. Since the intermediate indicator is still on pace to peak by late June or early July, it is becoming less and less likely that the post-March trend will be able to withstand a near term pullback. Increasingly, the risk is that a near term correction will prove to be a full blown reversal.
S&P 500 As near term momentum fatigues – and diverges – more and more stocks are pulling away from their post-March rally high. At Tuesday's close, more than one-quarter of NYSE common stocks were more than 10% below their rally high. At the initial rally high in early May, only 16% of common stocks were in that situation.
All of this suggests that there is increased evidence of important deterioration. So far, it is of the near term variety, but the rally is mature my almost any measure. Continued near term deterioration will undoubtedly morph into something more important. Moreover, even if the S&P moves to higher highs, there will likely be signs of increased negative divergences. Under those circumstances, such a rally would likely prove to be an ending phase, not a renewal.
With all of the above in mind, a reversal of momentum, together with a breach of the trend line and a violation of 923 (our first support/trading stop level), will be viewed as a distinct negative. For now, our resistance focus remains on 982.
Although the S&P 500 lost only 0.1% on Monday, it was the index’s third decline in four days. Moreover, the modestly lower close was the result of a strong final hour. It could have been worse – indeed the internals remained quite weak. For example breadth for the index was negative by a 3:2 ratio, while NYSE common stock breadth was negative by a 2:1 ratio. Downside volume outstripped upside volume but, more importantly, our primary accumulation line dropped below the distribution line for the first time since mid March.
Despite those negatives, both near and medium term momentum indicators still have a bullish bias for most of the S&P’s 27 industry groups. Moreover, the dominant uptrend line remains intact. We are inclined to continue to give the rally the benefit of the doubt for as long as both of these conditions exist. A reversal of momentum and a breach of the trend line would be a distinct negative. Our resistance focus remains on 982. The first support/trading stop level is at 923 (compared to Monday’s low of 926.44).
S&P 500 with Daily Momentum In last night’s comment, we mentioned that we could now count five waves from oil’s April low, suggesting that oil needs a rest. Monday’s decline was enough to result in a three-box reversal on oil’s point and figure chart. This further strengthens the idea that oil could experience its most important correction since April’s low in the 46-47 range. A break below 65-64 would lock in the five-wave pattern and allow for further weakness to at least 63-60 and possibly 57-56. Resistance is the recent high above 70.
In lieu of a Short Term Review, tonight’s blog will deal with points of interest from last week’s action.
1) The S&P 500 rallied 2.3%. Both near and medium term momentum oscillators are positive for both the index and a majority of the 27 industry groups. In addition, the annual rate of change broke out from a point and figure triple top formation, Breadth was solidly positive for the S&P 500, 400 (mid cap), and 600 (small cap) indexes and the dominant uptrend line is still in force. All of this suggests that, while the rally is increasingly mature, we still need to give it the benefit of the doubt for higher highs. Our resistance focus remains on 982. We are raising the first support/trading stop level to 923.
2) The long bond fell 3.8% for its 10th decline in 11 weeks. The low for the week was 112:31, which is just above key support at 112:14-112:17. We have been concerned that bond may have reversed from an historic top (and 10-year yields from an equally important low). A break of key support will increase the likelihood of the existence of such a top. Resistance begins at 117:13.
3) Oil rallied for the sixth time in seven weeks, gaining 3.2% from the week. During the week, oil crossed 70.00. In past reports, we have noted that a minimal 38.2% of 2008’s decline implies a move to at least the mid 70s. While the breach of 70 is a step in the right direction, the fact that we can now count five waves from April’s low suggests that oil needs a rest. First support is at 63-60.
4) A late rally allowed the US Dollar Index to gain 1.8% for the week. The greenback rallied against all six currencies in the index. Momentum, however, is weak and may remain that way into late June or early July. However, a rally through last week’s high would indicate that at least the short term trend has turned up, but key resistance is in the 84.87-86.87 range. Nearby support is at 78-77.
Finally, if you did not receive the recent monthly Insights, send us an e-mail at wgmurphyjr@gmail.com.
On Thursday, the S&P regained most of Wednesday’s losses with a rally of 1.2%. Advancing issues outpaced decliners by a 10:3 ratio, and momentum still has a bullish bias for a majority of the 27 S&P industry groups on both a near and medium term basis.
All seems well, correct? Unfortunately, volume is a growing concern. Total volume was essentially unchanged on Thursday, compared to Wednesday’s level, and was below its 21-dma for the 10th consecutive day. Moreover, our measure of buying interest has withered recently, while sellera have remained constant. This relative deterioration is taking place in an environment where (as mentioned in the recent monthly Insights), the cycle background will soon turn negative.
All that said, the rally still deserves the benefit of the doubt. We are concerned about its increased maturity, but the recent move through 944 did open the door for a possible challenge of 982.
In terms of support, we have used the 880 area as a support/stop area in recent weeks. It is likely that we’ll raise that level fairly sharply in our weekend update.
Editor’s note: given the very recent release of the monthly Insights, there will be no Short Term Review this weekend. We will, however, publish a comment on this blog.
Our monthly Insights is in the process of being e-mailed to everyone on our lists. Those who have expressed interest in becoming a subscribers later this year have already received an e-mail. Due to limitations by the vendors, the process of e-mailing everyone on our lists will continue into tomorrow.
If you do not receive Insights by this time tomorrow, send me an e-mail (wgmurphyjr@gmail.com) and I'll correct the situation.
Editor’s note: Our monthly Insights has been written, The editing and chart insertion still needs to be done, but the assumption is that we will begin releasing it tomorrow night,
On Tuesday, the S&P 500 rallied by only 0.2%, but that was enough to establish the index’s fourth consecutive gain. Breadth was modestly positive, but the daily a-d lines for both the S&P and NYSE commons stocks has moved to new rally highs along with the indexes. Volume declined from Monday’s level and is still below its 21-dma, but 108 of the stocks in the S&P 500 were able to rally on higher volume.
S&P 500 with Bullish Percentage Indicator
Given the modest activity, there are no changes to our outlook. Both near and intermediate momentum oscillators have a bullish bias and the classic uptrend (higher highs and higher lows) is still intact, Thus, the rally likely still has more life left in it.
That said, the rally is in its 13th week and will likely soon be showing signs of fatigue. For example, the bullish percent indicator is above 70% for the S&P, the DJIA and the NASDAQ for the first time since January. Moreover, near term momentum is positioned to peak within the next 8-9 days, while (more importantly) the intermediate oscillator is positioned to peak by the end of this month. Thus, there is evidence that this rally may only have 2-4 weeks left in it. A subsequent correction is likely to last for 3-5 months.
Daily and Weekly Coppock Curves (With Projected Paths)
Nearby resistance levels pale in comparison to the importance of Monday’s breach of 944; that said, next important resistance is likely at 982.
On Monday, the S&P 500 gained 2.6%. Volume increased modestly, but remains below its 21-dma. That said, 271 of the stocks in the S&P were up on higher volume, while only 34 fell on increased turnover. Similarly, 21 of the 24 S&P industry groups posted net gains.
But the most important development of all was that the S&P rallied through 944. We have often noted that such a breakout would lock in the entire decline from the October 2007 high as a complete Elliott Wave pattern. In turn, that means that the minimum requirements for the end of the bear market have been satisfied. That said, even if the S&P does decline to new lows once the current rally is over, that decline will be counted as a brand new (second) leg down from the 2007 high, not a continuation of the old one.
As 944 was being breached, a number of media sources and newsletters pointed out that the monthly Coppock Curve turned positive after having been negative since November 2007. The Coppock Curve is a momentum oscillator and has a good record, even allowing for the fact that it (like many such indicators) often lags the indexes. We believe that the Coppock turn is legitimate; it will not likely prove to be a whipsaw. This “signal” for the S&P 500 is bolstered by the fact that the monthly Coppock also now has a bullish bias for 14 of the 24 industry groups. So, our bottom line conclusion is that this newly uptrending Coppock Curve will maintain a bullish bias for at least a year.
But wait (as they say on those TV commercials). The Coppock Curve is applicable to time frames other than the monthly data. Therefore, it is worth noting that the weekly Coppock Curve is positioned to put pressure on the S&P within the next 4-5 weeks. So, just as the monthly Coppock is bottoming, the weekly version is peaking. This suggests that the true beneficial effect of the Coppock Curve may not be fully felt until the next weekly bottom occurs (probably some 3-5 months from now).
So, while we can and will give the post-March rally the benefit of the doubt for a while longer, we need to remember that the rally through 944 – and the reversal by the monthly Coppock Curve – is occurring as the rally has entered its latter stages. We still cannot rule out a tactical trade, but stops must be close. The better course is to use further strength to cull those positions that are not performing as the market is likely to soon begin an intermediate correction.
Nearby resistance levels pale in comparison to the importance of the breach of 944; that said, next important resistance is likely at 982.
Despite Monday’s rally, first support has been raised only modestly to 881, from 879.
A "Thank You" note: This blog got almost 400 hits during last week's holiday-shortened activity. That's a record for our short history. Thanks for the interest.
A Scheduling note: There was no STR this past weekend. We have updated our files and have begun the "Monthly." That will be out later this week. We will update the blog during the week (including tonight) as usual.
A "No Clue" note: We caught a guy on TV over the weekend who rather dismissively noted that the market was trading to the technicals. We know that the technicals lead the fundamentals. Obviously he doesn't. Another "expert" who doesn't understand the market.
A market note: things appear to be on schedule. A week ago, we suggested that the short term pressures would abate within about a week and that a subsequent short term top later in June would probably also coincide with an intermediate peak. We see no evidence to warrant any changes.
That fatigue is reflected by the fact that intermediate momentum peaked two weeks ago and, at this early vantage point, seems positioned to remain under pressure through the third quarter. Thus, we continue to think that any near term strength will be unsustainable. Even if the indexes make a run back to their June highs, the result will likely be more and greater negative divergence than those that already exist. Those divergences, in turn, would likely be a prelude to an even more obvious decline.
