Earlier in the week, I did two interviews. Please see: http://watch.bnn.ca/trading-day/january-2010/trading-day-january-11-2010/#clip254197 and http://media.mta.org/podcasts/2010-JAN12-waltermurphy.mp3.
On Thursday, the S&P 500 posted its 8th gain in nine days with a rally of 0.2%. Breadth was positive by a 5:4 margin. The up/down volume ratio was positive by 4:3 but total volume fell by 6% and is back below its 21-dma. The daily Coppock Curve is positive for 13 of the 24 S&P industry groups.
The S&P recorded new recovery highs on both an intra-day and closing basis. However, only 171 NYSE common stocks made a new 52-week high, compared to the 280 new highs earlier in the week. This contrasts with the 609 common stocks that are more than 10% below their 52-week high (and 296 that are at least 20% below their 52-week high).
S&P 500 with Post-March Fibonacci Retracement Levels
That brings us back to a point that we have made in the past. Once the post-March rally is over – and it will eventually come to an end – we would expect at least a 38.2% retracement. From Thursday’s high, that would imply a minimum 16% decline; 61.8% retracement would result in a 26% sell-off. Obviously, there are other scenarios, but it is not a stretch to suggest that one needs to expect a 15% rally from current levels (to near 1325) to be able to justify an equal risk/reward ratio. That is possible, but the market engaged in a structural bear market rally, volume is in a downtrend, sentiment is at excessively bullish levels, the dividend yield is at levels last seen in late 2007, and the four year cycle is likely exerting pressure. So, in the words of Clint Eastwood’s Harry Callahan character, “You've got to ask yourself one question: 'Do I feel lucky?’”
All that said, we are tempted to raise first support to 1132-1131 but, for now, our focus will remain on 1115-1114; a decline through that range would effectively lock in the rally from December 9 as a complete pattern. Until that happens, we will continue to give the current trend the benefit of the doubt. Second support remains at 1086-1085.
Meanwhile, there is still the potential for a continued challenge of the top end of our long- will deal with a breakout if and when it occurs.
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