Internal Peak

We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week.   Insights and the Short Term Review will continue to be available only to subscribers.  Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.

On Monday, the S&P 500 rallied 1.0%.  Breadth was positive by almost 11:2 and the up volume was better than down volume by almost 4:1.  However, total volume fell 9% to its second lowest level of the year.  It is interesting to note that, of the 39 trading days year to date, 23 have posted a gain, but 13 of those have occurred on lower volume.  That low volume pace has increased of late – five of the past seven up days were on lower day-to-day volume.

Meanwhile the daily Coppock Curve still has a bullish bias for all 24 S&P 500 industry groups.  That said, it still appears to be on track to peak in the early days of March (i.e., this week).  Obviously, we will watch that closely in coming day since a coming peak will put the daily oscillator in harmony with the still deteriorating weekly indicator.

In recent posts we have pointed to 1110-1116 as an important resistance area, reflecting the fact that it represents three different Fibonacci and chart relationships.  The S&P is now at the top end of that range and, since the rising Coppock may still have a few more days of life left in it, we have to respect the potential for a penetration of that range.  If that occurs, it would be at least a short term plus and imply further strength toward 1131-1150.

Even so, Monday’s high was enough to lock in the January-February decline as a complete pattern.  On the surface, that decline has a three-wave (counter trend) structure.  This, plus the fact that the decline was a 38.2% retracement of the preceding rally from July’s low, leaves open the possibility that this decline is simply a normal pullback within the larger post-March uptrend.  However, while the January-February downtrend has been reversed, its three-wave structure has not been locked in; that will require a rally through the January high.  Until that happens, it is still possible to count the rally from the February low as a counter trend move within a larger, still unfinished decline from the January high.  Thus, until the January high is breached, we will remain alert for at least a test of the February low.  We still think that the S&P is positioned to at least test, if not violate, its recent low near 1045.  Below Thursday’s low at 1086, next support is indicated at the 1078-1075 breakout point.  A breach of 1057 would be viewed as a breakdown.  We still regard 1029-1020 as tactical support.  However, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.

All that said, even if the S&P rallies through its January high, there is the very real possibility that new highs will be met with more and greater divergences than those that already exist.  As an example, the Bullish Percentage Index (BPI) peaked in September but recorded a lower high in January.  Thus, a case can be made that the market’s internal peak occurred in September.  As a result, higher highs by the S&P, accompanied by lower highs in the BPI, are arguably part of an important topping process.  This in not unlike the bottoming process that occurred between October 2008 and March 2009.  Both the S&P and the BPI made bear market lows in October 2008; the S&P continued to make lower lows in November 2008 and March 2009 while the BPI recorded successive higher highs.  The rest, as they say, is history.

This together, together with the momentum configuration, suggests that the 12-month uptrend has moved into its very late stages.