II and CS

Our next scheduled report will be January's monthly Insights, which will be a detailed "Year Ahead" piece. If you are interested in subscribing to our services or separately purchasing the Year Ahead issue, please contact customerservice@wminsights.com.

On Wednesday, the S&P 500 was virtually unchanged (with a gain of only 0.02%). Breadth was negative (by a 4:3 ratio) for the third day in a row and downside volume outstripped upside volume by a 2:1 margin. (However, breadth for the S&P smallcap index was positive, once again bucking the trend.) Total volume fell slightly and remains at very low levels. The daily Coppock Curve has a bullish bias for 16 of the 24 S&P industry groups.

The media was all lathered up that Investors Intelligence reported only 15.6% bears, which is the lowest such reading since 1987. But as a traffic reporter might say after an accident has been cleared, “the damage has been done.” We say that because, as with any sentiment indicator, we tend to look for divergences as an indication of a potential top. The 10-week bull/bear ratio broke out to a new rally high four weeks ago, so this week’s numbers just added to an already existing condition. The overbought readings do imply that a pullback is warranted, but the “good overbought” confirming condition suggest that a pullback will likely be followed by at least a test of the previous (pre-pullback) highs. In the end, this week’s II numbers provided no new information.

Case-Shiller's Long Term Momentum Condition

On Tuesday, the S&P/Case-Shiller Home Price indexes for October were released. Only seven of the 20 markets posted month-to-month gains. The media hopped on this as a sign that the economy is not as robust as thought and/or that rising interest rates were dampening the enthusiasm of potential home buyers. In our view, momentum is oversold and improving for all 20 markets and significant deteriorating conditions are not positioned to set in until the 3rd or 4th quarter of 2010. Thus, we are inclined to give this “B” wave rally in house prices the benefit of the doubt for a while longer.

We wish all of our subscribers and readers a happy and healthy New Year. We’ll see you in 2010.

Small Cap Stocks and the Put/Call Ratio

Our next scheduled report will be January's monthly Insights, which will be a detailed "Year Ahead" piece. If you are interested in subscribing to our services or separately purchasing the Year Ahead issue, please contact customerservice@wminsights.com.

On Tuesday, the S&P 500 fell 0.1% and broke a six day winning streak. Breadth was negative (by a 7:6 ratio) for the second day in a row and downside volume outstripped upside volume by almost 2:1. Total volume was slightly lower than Monday’s figure, but remains at very low levels. The daily Coppock Curve has a bullish bias for 17 of the 24 S&P industry groups.

Although total breadth was negative on Tuesday, the S&P 600 Smallcap index was an exception. Breadth was positive for the “600” even though it was negative for both its “500” (large cap) and “400” (mid cap) siblings. In recent comments we highlighted the idea that the small cap index had begun to outperform after a fairly long period of underperformance. We suggested that this new development was both a sign of relative strength and a signal that participation in the current uptrend was beginning to broaden out. That still seems to be the case.

S&P 500 with 10-Day CBOE Put/Call Ratio

Meanwhile the 10-day CBOE put/call ratio has moved into overbought territory. As the nearby chart shows, the S&P 500 has tended to pull back when the put/call ratio becomes overbought. Clearly, the extremes of those pullbacks differed in intensity, but they are evident. What may be a key this time is whether or not a nearby correction is able to hold above 1086-1085. A breach of that range would be the first lower low since July on the weekly chart. In turn, that would imply additional weakness. How significant that weakness might be could depend on the ability of the small cap stocks to act as a cushion.

That said, the post-November uptrend continues to receive the benefit of the doubt. Moreover – and as mentioned in prior posts – the November-December trading range is best counted as an Elliott Wave triangle or some other continuation pattern within a larger uptrend. Thus, even though the index has finally established a solid foothold in the important 1121-1156 range, higher highs cannot be ruled out. Within the range, resistance is indicated near 1137. A breakout through 1156 would allow for further strength toward 1170.

Nearby support is at 1094-1093, followed by 1086-1085. However, the early November low has become as important to our count as is the July low. Thus, 1029 is now viewed as tactical support.

If it’s a Bull Market, Where’s the Volume?

Our next scheduled report will be January's monthly Insights, which will be a detailed "Year Ahead" piece. If you are interested in subscribing to all of our services or separately purchasing the Year Ahead issue, please contact customerservice@wminsights.com

On Monday, the S&P 500 posted its sixth consecutive gain with a rally of 0.1%. As a result, it recorded new post-March highs on both an intra-day and closing basis, However, declining stocks outnumbered gainers by a small margin while up/down volume was positive by a 5:4 ratio. Total volume was higher than Thursday’s short session. The daily Coppock Curve has a bullish bias for 16 of the 24 S&P industry groups.

The S&P 500 continues to struggle higher. “Struggle” is the operative word. Despite the fact that it is on a six-day winning streak and has broken out to new highs, the corrective nature of the pattern remains in force. Moreover, even with the breakout, the index has yet to decisively pull away from the November-December trading range.

S&P 500 with Volume (21-dma)

Most important of all, volume continues to shrink. In a true bull market move, we would expect to see a notable expansion in volume, especially in the initial “liftoff” phase and/or in the third wave. As the nearby chart shows, that expansion has been noticeably absent right from the beginning in March. Indeed, the S&P’s low in March aligns nicely with a peak in volume. So while the trend is up, its corrective structure and lack of volume suggests that we view the recent strength with a healthy dose of caution.

That said, support at 1087-1084 remains intact, so the post-November uptrend continues to receive the benefit of the doubt. Moreover – and as mentioned in prior posts – the November-December trading range is best counted as an Elliott Wave triangle or some other continuation pattern within a larger uptrend. Thus, even though the index has finally established a solid foothold in the important 1121-1156 range, higher highs seem likely. Within the range, resistance is indicated near 1137. A breakout through 1156 would allow for further strength toward 1170.

Nearby support is at 1094-1093. As mentioned in our recent STR, the early November low is as important to our count as is the July low. Thus, it appears prudent to raise our tactical support benchmark to the S&P 500’s October low at 1029, from July’s 869 low.

Short Term Review

The latest Short Term Review has been released to subscribers. The next scheduled report will be January's monthly Insights, which will be a detailed "Year Ahead" piece. If you are interested in subscribing to our services or separately purchasing the Year Ahead issue, please contact customerservice@wminsights.com

Below is a snippet from the new STR:

It is worth noting that the IT sector is the largest sector weighting and almost 86% of its components possess constructive momentum underpinnings. Thus, continued strength in this sector would likely bode well for the “500” itself.

500 Plus 10

The kids (and granddaughter) will begin to descend on the homestead tomorrow night. So it sees likely that this will be our last post until early next week. Best wishes to all.

On Tuesday, the S&P 500 rallied 0.4% and, in the process, recorded a new recovery (since March) high on both a closing and intra-day basis. Breadth was positive by a bit less than 2:1 and the up/down volume ratio was positive by a 4:3 margin. However, the day’s gains were mitigated by the fact that total volume declined to its lowest level since Thanksgiving. The daily Coppock Curve has a bullish bias for 15 of the 24 S&P industry groups.

The big news of course is that the S&P recorded a new ytd high, as did the NASDAQ. However, neither the DJIA nor the NYSE common stock a-d line managed to do the same. Indeed, over 40% of the NYSE stocks are at least 10% below their highs, and more than 20% of the stocks are at least 20% below their previous 2009 peak. So while the trend is up, its corrective structure and lack of broad-based confirmations suggests that we view the recent strength with a jaundiced eye.

Our primary support focus remains on the 1087-1084 area. That range has repelled prior pullbacks on four occasions over the past four weeks and, as a result, a decisive breach of that range would be an important change in behavior.

Since 1087-1084 is still intact. the post-November uptrend continues to receive the benefit of the doubt. Moreover, the backing and filling of recent weeks, coupled with Tuesday’s new high, suggests that the index has completed an Elliott Wave triangle or some other continuation pattern. The day’s high was 1120, so the door is obviously still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

10-Year Yields

Meanwhile, 10-year yields closed at 3.744%. Subscribers may recall that, in our recent STR, we indicated that a rally through 3.60% would imply that the uptrend from the November 30 low had taken on an impulsive look and would be part of a larger uptrend. Thus, the potential is for further strength to at least the June-August double top at 3.85%-3.94%. Nearby support is at 3.49%.

Small is Getting Bigger

A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions, please e-mail us at customerservice@wminsights.com.

On Monday, the S&P 500 posted its second best rally of the month with a gain of 1.1%. Nonetheless, the index fell just short (by 0.06) of a new closing recovery high. Breadth was positive by 10:3 and the up/down volume ratio was positive by better than 4:1. However, total volume declined by more than half and fell back below its 21-dma. The daily Coppock Curve has a bullish bias for 13 of the 24 S&P industry groups.

While the S&P 500 had a good day, the S&P 600 Smallcap Index had an even better day, rallying 1.4%. Indeed, this was the seventh straight day where the “600” outperformed the “500.” This is a relationship that we will have to watch more closely in the weeks ahead. In this week’s STR, we noted that a case could be made that the market’s internal peak was actually made in September. Tha is also when the “600” recorded an intermediate peak versus the “500” and began a relative decline that endured into December. So, if the recent improvement has “legs,” it could be a sign that the overall market rally is broadening out. That, in turn, would increase the likelihood of still higher highs by the popular averages.

That said, outperformance is not limited to uptrends. The “600” could hold up relatively well during a market correction. This, too, would help maintain the relative strength pattern favoring small cap stocks over large caps.

S&P 600/500 Relative

With all of that in mind, relative momentum suggests that the smallcap index can indeed continue to outperform its big cap sibling. Near term momentum is at confirming “good overbought” levels; as the nearby chart shows, the last few times that the stochastic indicator moved to overbought levels similar to the current condition, the relative rally then in force still had more life left in it. Moreover, the weekly Coppock Curve for the “600”/”500” relative has just reversed to the upside and has the potential to maintain this new bullish bias through much of 2010’s first quarter.

In absolute terms, the “600’s” pattern is similar to that for the “500.” The post-March pattern is corrective, and the November 2 low (294) is key support akin to the 1029 benchmark we have been using for the “500.”

In terms of resistance, the “600” has already retraced more than 50% of the 2007-2009 bear market and is within a fraction of a point of breaking out to new recovery highs. Such a breakout would open the door for a challenge of chart and Fibonacci (a 61.8% retracement) resistance in the 340.347 range.

Short Term Review

Our latest Short Term Review has been released to subscribers and is available on our website. In this issue, we discuss the divergences in the equity market, rising yields, the potential for a surprisingly large dollar rally, and continued pressures on commodities. If you are interested in subscribing and receiving this and future reports, please send an e-mail to customerservice@wminsights.com.

Here is a sample from the current report:

In recent comments we have made a fairly big deal about the trading range that has been in force since early October. However, there is a case to be made that the internal peak was actually made in September. If so, then the market has spent the last three months creating divergences that will ultimately come home to roost.

S&P 1500 with BPI

An example of this is the nearby chart, which shows the S&P 1500 with its Bullish Percentage Index (BPI). The BPI is a point and figure breadth/momentum indicator (for a full definition. please refer to the glossary in our website, www.wminsights.com). While the index’s uptrend from the March low remains intact, the BPI clearly peaked in September. In fact, the BPI is in a downtrend.

SPX and DXY

A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions, please e-mail us at customerservice@wminsights.com.

On Thursday, the S&P 500 fell 1.2%. Breadth was negaitive by a bit less that 9:2 and the up/down volume ratio was positive by a bit more than 9:1. Total volume increased by almost 50% to its highest level since August. The daily Coppock Curve has a bearish bias for 14 of the 24 S&P industry groups.

Thursday was a bad day, especially if one looks at the volume figures. However, the volume figures are skewed by Citicorp’s 3.8 billion share secondary offering, which represents almost half of total volume. Absent that, volume likely would still have been in excess of five billion shares, which is on a par with the level of recent days. Even so, breadth was poor, as was momentum.

Nonetheless, the S&P managed to hold the nearby 1097-1094 support level mentioned in Thursday morning’s post. If that level continues to hold, this pullback may prove to be nothing more than a short term reaction. That said, our primary focus remains on the 1087-1084 area (which is also trend support on the hourly P&F chart). That range has repelled prior pullbacks on four occasions over the past four weeks and, as a result, a decisive breach of that range would be an important change in behavior.

Since 1087-1084 is still intact. the post-November uptrend continues to receive the benefit of the doubt. Moreover, the backing and filling of recent weeks may be an Elliott Wave triangle or some other continuation pattern. Thus, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

US Dollar Index

On another note, the dollar index has rallied through the 76.82 resistance area mentioned in recent comments. Thus, the minimum requirements for a complete pattern from last March’s low have been satisfied. In turn, this suggests that an ABC correction that began in November 2008 may have also been satisfied. This, plus the fact that the “C” wave of that ABC appears to have also been a diagonal triangle, our expectation is for at least a full retrace to the 88-89 area. If this is correct – and if recent relationships continue to hold sway – this would imply an important commodity correction.

Three Developments to Ponder

We’re back – sort of. We will have a normal post tonight, but three developments warrant a “heads up” comment. First, yesterday’s move to a new recovery high from the December 2 low was not confirmed by hourly momentum and failed to break out of the larger November-December trading range.

Second, the daily Coppock Curve took on a bearish bias for a majority of 24 industry groups. This fits in with our prior observations that a majority of the groups would maintain the previous bullish bias for only a week or so, rather than the more normal 3-5 week expectation. That said, this downside reversal will need some monitoring to confirm whether it is sustainable.

S&P Hourly

Finally, the futures are sharply lower. If this translates into a sharp decline in the market though the day, it would bolster the Coppock reversal and imply a test of nearby support in the 1097-1094 area. Our primary focus remains on the 1087-1084 area (which is also trend support on the hourly P&F chart). One does not need to be a technician to realize that a decisive breach of 1087-1084 would be an important change in behavior.

Meanwhile, the post-November uptrend continues to receive the benefit of the doubt. Moreover, the backing and filling of recent weeks may be an Elliott Wave triangle or some other continuation pattern. Thus, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

Short Term Review

The latest Short Term Review has been released to subscribers. This issue includes a sector review, as well as the usual comments on the market, yields, the dollar and commodities. If you are interested in subscribing, please contact us customerservice@wminsights.com.

Here is a portion from that report:

The Information Technology sector has – by far and away – the strongest relative strength pattern among the 10 economic sectors. The sector bottomed in November of last year and the resultant uptrend has been intact in both absolute and relative terms ever since. The price index has retraced more than 61.8% of the 2007-2009 decline and the Stochastic indicator has taken up residence in overbought territory, This, plus regular successful tests of the 10-wma, speaks to the linear nature of the year-long rally. Nearby support is at 348-344; second support is apparent near 332-338. As for resistance, a rally through 361-362 would open the door for a challenge of 376 and beyond.



On a personal note, due to a medical issue in the family, there will be no blog updates through at least Wednesday.

Momentum Improves; Financial Assets Grow

A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions, please e-mail us at customerservice@wminsights.com.

On Thursday, the S&P 500 rallied 0.6%. Breadth was positive by a 5:4 margin and the up/down volume ratio was positive by a bit more than 3:2. Total volume decreased by 2% to its lowest level in over a week.

The daily Coppock Curve has taken on a bullish bias. Indeed, the oscillator has turned up for 13 of the 24 S&P industry groups; this compares with only four constructive groups on Wednesday. This is a bit of a surprise, but this improvement does not appear to be sustainable for long. We say that because 10 of the 13 groups are in overbought territory. Put another way, most of the “improvement” came about because a number of groups moved from “overbought and deteriorating” to “overbought and improving.” For a more robust rally to develop, we would prefer to see the strength develop from an oversold condition; that is obviously not the case here. Thus, we would not be surprised if the majority of the groups maintain a short term bullish bias for only a week or so, rather than the more normal 3-5 week expectation. Moreover, the weekly Coppock Curve is still in a distinct downtrend.

But improving is improving and 1087-1084 held yet again, so the post-November uptrend will continue to receive the benefit of the doubt. Moreover, the backing and filling of recent weeks may prove to be an Elliott Wave triangle or some other continuation pattern. Thus, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

As mentioned in yesterday’s post, the successful test of 1087-1084 generated a positive divergence in the hourly chart and an upside breakout by hourly momentum. With the improvement in the daily configuration, we will be need to be alert for negative divergences before the index is positioned to succumb to medium term pressures.

Household Financial Assets as a Percent of Total Assets

On another note, the Fed released its quarterly Flow of Funds data on Thursday; much of the data goes back to 1952. The data revealed that household financial assets represented 66% of total assets. That number has only been higher for 46 of the 213 quarters in the data. This suggests that this bear market rally is approaching – and may have already achieved – overvalued (oops, we mean overbought) levels.

Positive Divergences, But …

A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions, please e-mail us at customerservice@wminsights.com.

On Wednesday, the S&P 500 rallied 0.4%. Breadth was marginally positive, but the up/down volume ratio was marginally negative. Total volume decreased by 12%. The daily Coppock Curve still has a bearish bias for 20 of the 24 S&P industry groups.

For some time, we have discussed the importance of 1087-1084 as support. On Wednesday, the S&P tested that range yet again and – yet again – that range repelled the attempted sell-off. That resulted in a greater positive divergence in the hourly chart and an upside breakout by hourly momentum.

S&P 500 Hourly
However, the downtrend from December 4 high remains intact and the more important daily and weekly momentum oscillators have a bearish bias. Moreover, the uptrend line from the November low has been pierced on our point and figure chart and the downtrend from that early December high has an impulsive look to it. All of this implies that lower lows are likely, which means that near term strength is likely to be short lived. It also means that the 1087-1084 support range may be becoming increasingly fragile.

Since the 1087-1084 range has repelled another setback, we will continue to give the November-December uptrend the benefit of the doubt. Thus, until the 1087-1084 range is broken, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

Conversely, a breach of 1087-1084 would be an initial indication of potential further weakness toward the 1029-1020 area.

Watching S&P 1087-1084 and the euro

A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions, please e-mail us at customerservice@wminsights.com.

On Monday, the S&P 500 fell 1.0%. Breadth was negative by a 4:1 margin and the up/down volume ratio was negative by a bit less than 6:1. Total volume increased by 15%. The daily Coppock Curve still has a bearish bias for 19 of the 24 S&P industry groups.

In yesterday’s post, we pointed out that there were signs of potential positive divergence on the hourly chart. We also repeated our recent observations on the importance the 1087-1084 support range. Despite Tuesday’s pressures the positive divergence are now more obvious and the 1087-1084 range continues hold. Those conditions will take on a more bullish flavor if both the index and momentum move back through their respective hourly downtrend lines.

With that in mind, we remain cognizant of the fact that daily and weekly momentum indicators still have a bearish bias. Moreover, the decline of recent days does have an impulsive look to it. So, it still seems likely that, even if the index begins to regain its footing, the resulting rally will short-lived (a matter of just a few days.)

As a result, there are still no meaningful changes in our support and resistance benchmarks. Since the 1087-1084 range has repelled all setbacks over the past several weeks, we will continue to give the November-December uptrend the benefit of the doubt. Meanwhile, until the 1087-1084 range is broken, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area. As it is, last week’s recovery high came within 0.2% of that range. Conversely, a breach of 1087-1084 would be an initial indication of potential further weakness toward the 1029-1020 area.

Euro

Also in yesterday’s post we pointed out that the dollar index has rallied through what can be considered the dominant downtrend lines from both the March high and the July reaction high. With that in mind it is worth noting that the euro – which carries almost 58% of the weighting in the index – has decisively penetrated its own dominant trend line. Indeed, we can make a case that the euro have violated its trend lines more significantly than has the index. This could be another sign that the dollar is making – or has made an important low. Nearby chart support is at 1.46, then 1.44-1.43. Trend support is at 1.41-1.40. Resistance is at 1.50-1.52.

An Inside Day Plus the Dollar

December’s monthly Insights has e-mailed to our subscribers; it is also available to subscribers on our website. A subscription to our market letters is available through the website (www.wminsights.com). This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

On Monday, the S&P 500 fell 0.2%. Declining issues were less than 10% greater than advancers and the up/down volume ratio was negative by about 4:3. Total volume fell by 33% from Friday’s five-week high. The daily Coppock Curve still has a bearish bias for 19 of the 24 S&P industry groups.

Following successive outside days on Thursday and Friday, Monday was an inside day (neither its high nor the low exceeded those seen on Friday). This suggests that, following the volatility of the prior two days, Monday was either a rest day or a day of indecision. That said, there are signs of potential positive divergence on the hourly chart. We say “potential” because they have not been confirmed yet and the downtrend from Friday morning’s high is still intact. Moreover, even if a rally does develop, it probably will not last too long given that the daily and weekly momentum indicators still have a bearish bias.

As a result, there are no meaningful changes in our support and resistance benchmarks. The S&P remains above 1087-1084. Since that range has repelled all setbacks over the past several weeks, we will continue to give the November-December uptrend the benefit of the doubt. Until the 1087-1084 range is broken, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area. As it is, last week’s recovery high came within 0.2% of that range. Conversely, a breakdown would allow for further weakness to at least 1081-1062 (a 38.2%-61.8% retracement of the overall pattern from the November 2 low). However, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.

US Dollar Index (with the S&P 500 in the Background)

Meanwhile, the dollar may finally be acting as if it wants to begin the long-anticipated rally. We have been making the case that intermediate momentum for both the index and for the dollar versus most of the currencies within the index (including the euro) was bottoming or had bottomed, Moreover, sentiment has been (and still is) excessively bearish by historical standards and the wave count is corrective. Against this backdrop, the dollar index has rallied through what can be considered the dominant downtrend lines from both the March high and the July reaction high.

While we respect the possibility that the dollar index is bottoming, our focus remains on the parameters mentioned in December’s monthly Insights. Our immediate focus is on 76.82. A rally through that level will allow us to count the post-March decline as a complete pattern; that, in turn, would satisfy the minimum requirements for a complete 13-month ABC. As for support, the index has traded to as low as 74.23, which is solidly within the 74.30-73.90 support range. Beyond that lies 2008’s double bottom at 70.31-70.70.

Monthly Insights

December's monthly Insights has been e-mailed to our subscribers and has also been posted to our website for subscribers. If you are interested in becoming a subscriber, please visit the website (www.wminsights.com) for details.

Below is a chart from the new report.

Watching 1087-1084 -- Day 2

We expect to finish writing December’s monthly Insights by tomorrow (Saturday at the latest). It will be made available to subscribers on our website (www.WMInsights.com) and via e-mail.

On Thursday, the S&P 500 broke a three-day winning streak with a loss of 0.8%. The index did manage to record a new intra-day recovery high before a final hour sell-off put it in the red. The result was an outside day (i.e., both a higher high and a lower low than Wednesday’s range). Breadth was negative by an almost 4:1 margin, and the up/down volume ratio was negative by more than 2:1. The day’s pressures were exacerbated by a 21% increase in total volume. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

30-Minute S&P Point and Figure

In yesterday’s post we felt that the “pop” from Friday’s low may well have been completed. While today’s action was a big step in that direction, the S&P remains above 1087-1084. Since that range has repelled all setbacks over the past several weeks, we will continue to give the November-December uptrend the (increasingly stingy) benefit of the doubt. However, it is important to note that all degrees of trend from intermediate on down have a bearish momentum bias. We believe that the weekly Coppock Curve is positioned to remain under pressure into next year. The daily oscillator is expected to remain weak for another two weeks.

Meanwhile, until the 1087-1084 range is broken, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area. Today’s high came within 0.3% of that range.

Watching 1087-1084

Subscriptions to our monthly Insights and Short Term Review are available through our website (www.wminsights.com). We hope to have the December monthly complete by the weekend. When finished, it will be made available to subscribers. This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

On Wednesday, the S&P 500 was virtually unchanged, eking out a 0.03% gain. However, the index did manage to record a new intra-day recovery high before falling back to close just below its previous closing high. Nonetheless, breadth remained positive (by a bit less than 2:1) and up volume outpaced down volume by a 7:5 margin. Total volume fell by 8% and moved back below its 21-dma. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

Today’s rally may well have completed the “pop” from Friday’s low. An acceptable three-wave counter-trend pattern is in place and hourly momentum has turned down from overbought levels. There is even a modest negative divergence. This, together with the already deteriorating daily and weekly momentum background, suggests that all degrees of trend from intermediate on down have a bearish bias.

S&P Hourly
That said, the 1087-1084 area has repelled all setbacks over the past several weeks. Thus, even with the momentum and pattern pressures noted above, it will take a break decisively below that range in order to more fully confirm that the November-December ABC rally has reversed. Such a breakdown would allow for further weakness to at least 1081-1062 (a 38.2%-61.8% retracement of the overall pattern from the November 2 low). However, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.

Conversely, until that 1087-1084 range is broken, we will give the November-December uptrend the benefit of the doubt. Thus, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

That Didn’t Take Long

Subscriptions to our monthly Insights and Short Term Review are available through our website (www.wminsights.com). We hope to have the December monthly complete by the weekend. When finished, it will be made available to subscribers. This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

The S&P 500 rallied 1.2% on Monday, just missing both a new intra-day recovery high and a new closing high. Breadth was positive by 11:2 and up volume outpaced down volume by a bit more than a 7:2 margin. Total volume was little changed from Monday’s level but edged above the 21-dma for the first time since November 4. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

Isn’t it interesting how Dubai is no longer a big story since the S&P has refused to wilt? Be that as it may, in yesterday’s post we indicated that a rally through 1102 would be a short term breakout, while a breach of 1087-1084 would violate both chart support and an important uptrend line. It did not take long for the S&P to make it intentions; in the first hour of trading, it rallied through 1102 and followed through to once again challenge November’s 1111-1114 recovery high. This rally does have an impulsive look to it and hourly momentum has confirmed the move so far, so we do have to allow for higher highs. Thus, the door is open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

S&P 500 with Hourly and Daily Coppock Curves
However, the daily Coppock Curve is likely to remain weak for at least another week, which suggests that it will withstand any further upside pressures from the “pop.” Moreover, the overbought and deteriorating weekly oscillator is positioned to maintain its bearish bias into the New Year. Thus, from the perspective of the hourly, daily, and weekly trends, only the hourly can be said to have constructive momentum underpinnings. We would also note that, while the S&P came very, very close to a new recovery high, one-half of the common stocks in the NYSE are at least 10% below their own ytd high; the rally is increasingly narrow.

In addition to the suspect momentum background, the recent trading range can be counted as a triangle, which is how we labeled it yesterday’s post. In Elliott Wave, triangles are typically penultimate patterns, so the trading range could prove to be the “B” wave of an ABC rally from the November 2 low. If that count is correct, then today’s rally was the opening salvo in the final “C” wave. Once the ABC rally is complete, we will have to be on alert for a full retrace back to at least the November 2 low at 1029.

As for support, a breach of the recent 1087-1084 low would violate both chart support and an important uptrend line from the early November low. As such, the potential would exist for a deeper further weakness to 1081-1062 (a 38.2%-61.8% retracement of the overall pattern from the November 2 low. Nonetheless, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.

A Short Term Pop

Subscriptions to our monthly Insights and Short Term Review are available through our website (www.wminsights.com). We hope to have the December monthly complete by the weekend. When finished, it will be made available to subscribers. This blog will remain as is for a few more weeks, but will eventually be moved to the website for subscribers only. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

The S&P 500 rallied 0.4% on Monday, barely making a dent in Friday’s sell-off. Moreover, Monday was an inside day; the lower high and higher low than those seen on Friday is an indication of indecision. Nonetheless, breadth was positive by 4:3 and up volume outpaced down volume by a 7:5 margin. Total volume was almost twice Friday’s short session. The daily Coppock Curve has a bearish bias for all 24 S&P industry groups.

The S&P is trying to dodge a bullet. Despite all the hoopla associated with Dubai, the index continues to hold support at 1081-1072, which represents a 38.2%-50% retrace of the rally from the November 2 low at 1029. As such, it is still only a normal pullback within the smallest wave degree. Moreover, the correction of recent days is essentially a trading range and none of the legs (either up or down) were impulsive. Finally, positive divergences were evident by hourly momentum oscillators. All of this suggests that the trading range of recent days is a continuation pattern within an uptrend and that the index is positioned for a short term pop.

30-Minute S&P with Stochastic Indicator

That said, both near and medium term pressures are evident. Thus, if a "pop" does develop, it will likely be short-lived. It may be nothing more than a last gasp “C” wave. In that regard, we would view a rally through 1102 as a short-term breakout paving the way for a rally to the recent 1111-1114 recovery high and possibly the 1121-1156 range that we have regularly highlighted as a significant resistance range.

Conversely, a breach of the recent 1087-1084 low would violate both chart support and an important uptrend line from the early November low. As such, the door would be open for a deeper test of normal support (down to 1072). Nonetheless, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.

A pre-Insights Summary

The subscription process for our monthly Insights and Short Term Review is well under way via our website (www.wminsights.com). The response has been gratifying. This blog will remain as is for some weeks, but will eventually be moved to the website. At that point, this page will remain, but the content will be a brief summary of the full website post. If you have any questions please e-mail us at customerservice@wminsights.com.

We have begun work on the monthly Insights, so there will be no Short Term Review this week. In lieu of the STR, this blog will briefly cover the S&P. yields, the dollar index, and commodities.

Stocks: On Friday, the S&P 500 held support at 1081-1072, which represents a 38.2%-50% retrace of the rally from the November 2 low at 1029. As such, it was a normal pullback within the smallest wave degree. So, despite all the hype, Friday was something of a ho-hummer. That said, the market is not out of the woods. Both near and medium term momentum indicators are weak, sentiment remains excessively bullish, and important trend lines (relative to both price and momentum) have been violated. Lower lows, therefore, are likely in the weeks ahead. The “reason” will become apparent in due course – and it may not even be Dubai. Our primary focus for support is on 1029. A break of that level would confirm that the post-July rally is over. As for resistance, the index has not been able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 range that we have regularly highlighted.

S&P 500 with Intermediate Momentum

Yields: Last week, 10-year yields came within a hair’s breadth of breaking to new post-August reaction lows. Even if new reaction lows are achieved, they would fit in with the comments expressed in our most recent STR. While there have been mixed signals, we pointed out that October’s rally proved to be corrective and, therefore, took place within the larger post-August downtrend. Fairly ample support exists down to 3.175%; a violation of that level would allow for further weakness toward 3.0% +/-. Although 3.55% area is still viewed as important resistance, a break of 3.175% would do much to lower initial resistance to something closer to 3.32%.

Commodities: The most important news of the week was the decisive breakdown by oil through both important chart support and an important uptrend line. Nonetheless, the equal-weighted Continuous Commodity Index has held up quite well. That said, intermediate momentum for the index is due to take on a bearish bias within the next 3-4 weeks (momentum for gold may hang in there for 4-7 weeks, while food may show some relative strength). Nearby support for the CCI is a 466-464, but it will probably take a violation of 452-448 to qualify as an important breakdown. Nearby resistance is indicated near 488 then 505-510.

US Dollar: The wait continues. Wave form, momentum, and sentiment all continue to suggest that an upside reversal is imminent. However, the post-March downtrend remains intact as the index continues to beat to its own drummer. In the absence of an upside reversal, we have had to respect the potential for a challenge of 74.30-73.90; that test was achieved last week with a move to 74.23. As for resistance, if our overall count is correct, the ultimate potential is for a rally to (or through) 88-89. Our more immediate focus is on 76.82 because a rally through that level would probably be enough to indicate that the tide has finally turned.

“Really Significant”

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In Tuesday night’s blog, we said that it would be the last post of the week unless something “really significant” happens. Well, it appears that the unfolding debt crisis in the Middle East could be the catalyst for a significant day. Most global markets were under pressure on Thursday, and those pressures are continuing today. The US market, which was closed on Thursday for Thanksgiving, is likely to play catch up; as this is being written, the S&P futures are down over 33 points. That translates to a 3% decline for the cash index to about 1077.

Obviously, a lot can happen during the trading day, but let’s put a 3% decline into perspective. We had to go back to June in order to find a day when the S&P closed down at least 3%, but we only had to go back a month to find a daily range in excess of 3%. Moreover, a move to 1081-1072 would represent a 38.2%-50% retrace of the rally from the November 2 low at 1029. A decline to 1077 would, therefore, only be a normal pullback within the smallest wave degree.

S&P 500

So, the problem is not today’s anticipated catch up; it is what could come afterward. Such a decline would complete a top formation and would decsively breach the post-March trend line (currently at 1108). It also comes two days after the daily Coppock Curve turned down and joined its already weak cousin, the weekly Coppock (readers may remember that we think that the weekly Coppock could remain under pressure through the rest of the year). In addition, most advance-decline lines (as well as On-Balance Volume) did not confirm the recent highs, sentiment is excessively bullish, and cycles are exerting downward pressure. All of this implies that the market is in position for an intermediate decline, not just a one-day wonder.

As mentioned in Tuesday’s post, a violation of 1100-1085 would likely open the door for a test of 1029-1020. We have said many times that a break of 1020 would confirm that the post-July rally was over. That would be the more important event.

As for resistance, the index was not able to decisively pierce the downtrend line from the 2007 high, nor did it seriously challenge the 1121-1156 resistance range that we have regularly highlighted.

In sum, we have suggested that the downside risk was beginning to outweigh the upside potential in terms of both price and time. Early indications are that today’s action may begin to put that observation to the test.

Oil Breaks Down

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This is the last post of the week unless something really significant happens. Have a Happy Thanksgiving.

The S&P fell by less than 0.1% on Tuesday. The breadth ratio was negative by 8:5 and up/down volume was positive by a 3:2 margin. Volume fell slightly from Monday’s level and remains below both four billion shares and its 21-dma. The daily Coppock Curve now has a negative bias versus 18 of the 24 S&P industry groups.

Yesterday, we observed that the daily Coppock Curve had probably peaked. That was confirmed today by the Coppock’s reversal against most of the 24 industry groups. Our initial estimate is that these near term pressures could persist for the balance of the year but – more importantly – they join an already weak intermediate background (the weekly Coppock has a bearish bias for 19 of the industry groups). This, plus the fact that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs (as is NYSE on-balance volume) suggests that the downside risk – in terms of both price and time – increasingly outweighs the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

Oil

As mentioned in recent comments, oil’s dominant feature has been an 81-76 trading range. Today, oil broke down from that range and, in the process, is seriously testing important support trend lines. As a result, preliminary point and figure objectives and Fibonacci retracements suggest that the initial downside potential is on the order of 71; below that, we would look for 66-64. There is now significant resistance in the 77-80 area.

Last Gasp?

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The S&P rallied 1.4% on Monday. That broke a three day losing streak but fell just shy of a new recovery high. The breadth ratio was positive by a bit less than 11:2 and up/down volume was positive by a bit less than a 5:1 margin. Volume increased modestly from Friday’s level, but remained below four billion shares and below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

In our new Short Term Review, we noted that, as of Friday, fully half of the common stocks on the NYSE were at least 10% below their ytd high. Moreover, in recent comments we have had something of a countdown for a coming peak of the daily Coppock Curve. Since today appears to have been the peak for the Coppock and since there was little improvement in the number of stocks below their ytd high, it would seem that Monday’s surge was of little actual technical benefit. If that is not enough, it should be noted that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs, as is NYSE on-balance volume.

S&P 500 with NYSE On-Balance Volume
Thus, it would seem that the only thing the market has going for it is that the major averages are still in an uptrend. It would seem, therefore, that the most popular averages are not accurately representing the health of the market. Indeed, that is a point we made in the recent STR and suggests that recent strength is a last gasp rather than the beginning of a sustainable upleg. That said, the days prior to Thanksgiving are often positive; for example the first three days of Thanksgiving week have been up for six of the past seven years. So the market may be able to hang in there for another few days. But the downside risk – in terms of both price and time – is clearly outweighing the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

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Live and in Person

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Thin Ice

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The S&P fell 0.1% on Wednesday, barely avoiding a second consecutive inside day. Breadth was negative by a 5:3 margin, but up/down was positive by a 4:3 ratio. Volume increased by 11% above Tuesday’s low level and remains below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

Given the second narrow day in a row, there is not much to add to recent comments. The rally from the November low is more corrective than not, which suggests that it is an ending pattern. The risk is that it is an ending pattern relative to the entire post-July rally. As a result, a breach of the uptrend from the early November low would be an early warning sign prior to a potentially important decline.

In addition to these price considerations, the daily Coppock Curve is positioned to maintain its bullish bias for another 4-5 days, even as the weekly Coppock currently seems likely to be under pressure through the rest of this year. This combination implies that a coming short term peak might also have negative intermediate implications.

Daily and Weekly Coppock Curves
Finally, sentiment is overbought. Our index was recently at levels that matched the 2007 high and has not backed off all that much. So, it would seem that price, momentum, and sentiment all suggest that the rally is skating on thin ice.

Last week’s test (at 1085) of the post-March uptrend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

As for resistance, the downtrend line from the 2007 high is currently at 1109.10 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.

Inside Day Yields No Changes

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Although the S&P rallied 0.1% on Tuesday, the overall action resulted in an inside day, i.e., a lower high and higher low than what was seen on Monday. Volume fell back below four billion shares (versus Monday’s 4.7 billion shares). Breadth was negative by a 4:3 margin but up volume outpaced down volume a by 6:5 ratio. The daily Coppock Curve still has a bullish bias for all 24 S&P industry groups.

S&P 500 Hourly

Given the inside day, there is not much to add to the comments of recent days. The daily Coppock Curve is likely to maintain a bullish bias for another 5-6 days, but has yet to confirm the recent highs. Meanwhile, the weekly oscillator is overbought and deteriorating. In addition, the rally from the November low is more corrective than not, which suggests that it is an ending pattern. The risk is that it is an ending pattern relative to the entire post-July rally. As a result, a breach of the uptrend from the early November low would be an early warning sign prior to a potentially important decline.
As for resistance, the downtrend line from the 2007 high is currently at 1109.10 on the weekly chart. A decisive breach of this line would clear the way for a full challenge of the 1121-1156 resistance range that we have regularly highlighted.

Last week’s test (at 1085) of the post-March uptrend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

Hindsight is 20/20

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On Monday, the S&P rallied 1.5%. Volume surged by 20%, but that is only because Friday’s total (3.9 billion shares) was one of the lowest of the year; Monday’s level was still below the 21-dma. Breadth was positive by a 9:1 margin and up volume outpaced down volume a by 6:1 ratio. The daily Coppock Curve still as a bullish bias for all 24 S&P industry groups.

Market analysis is typically a weight of the evidence discipline and more often than not the array of indicators can be prescient. But sometimes hindsight adds 20/20 clarity. The recent behavior of the S&P relative to its dominant post-March uptrend line is such an example. In late October, the “500” breached this daily trend line for the first time and we took that as an important change and a sign that the market was in position for its biggest decline since June-July. Last week, however, the S&P rallied back through that line and then pulled back to test it. Today’s surge followed that successful test.

As a result, October’s breach deserves to be viewed as a “false break.” That said, we will keep the line where it is and will not re-draw it to reflect the November 2 low. This is because the original line currently has four touch points; a new one would only have two. By definition, the more touch points a trend line has, the more important it is. Anyone can draw a “trend” line with only two touch points.

S&P 500 (Weekly)

While we are on the subject of trend lines, the weekly chart shows that the S&P is at an important confluence. Both the post-March uptrend line and the downtrend line from the 2007 highs are about to collide. Moreover, the downtrend line is currently at 1109.10 – compared to today’s 1109.30 close. It would seem that a decisive breach of this line would clear the way for a full challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the daily Coppock Curve has the potential to remain constructive for another 5-7 trading days, which suggests that such a challenge should occur fairly quickly or it may be a lost opportunity.

Last week’s test (at 1085) of the post-March trend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

Short Term Review

Our latest Short Term Review has been e-mailed to our charter subscribers.

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What We (Think We) Know

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On Thursday, the S&P fell 1.0%. Breadth was negative by almost an 8:1 margin and up/down volume was negative by an 11:2 ratio. Despite these pressures, volume decline from the prior day’s so-called holiday levels. The daily Coppock Curve still as a bullish bias for all 24 S&P industry groups.

S&P 500


Most of the Elliott Wave comments that we see totally ignore the fact that the 10-21-11/02 decline was a five-wave pattern. As such, that decline cannot be counted as either a fourth wave or a “B” wave. Furthermore, since the S&P followed that decline with a rally to new recovery highs, we have little choice but to label the decline as the “C” wave of a larger ABC correction. Indeed, the bigger question has to do with where that ABC pattern began. The two best choices are the highs on September 23 or October 19; we prefer the former.

Why is that important? There are two reasons. First, not only did the rally from the November 2 low achieve new ytd highs, its structure is corrective. Second, that 9/23-11/2 ABC pattern has established a key double-bottom at 1029-1020. The significance of that double bottom is that, if it is violated, it would lock in the post-July rally as a complete pattern (in the same way that June’s initial weakness reversed the rally from March’s low).

The corrective structure of the 11/2-11/11 rally means that we need to respect the possibility that it was a diagonal triangle. (We say “was” because Thursday’s sell-off locked in that rally as a complete pattern.) Diagonals are ending patterns so, if that “diagonal” count is correct, then the index could be on the verge of its largest correction since at least the July low. In prior posts, we have mentioned the intermediate negatives that bolster this correction possibility, so it seems clear that the post-July uptrend is skating on thin ice.

That said, the index could benefit from the fact that the daily Coppock Curve has the potential to remain constructive for another 6-8 trading days. Thus, the door is nominally still open for a challenge of 1121-1156. At the least this condition (plus an oversold 10-day CBOE put/call ratio) should provide an initial cushion.

Given the complete 11/2-11/11 pattern, a normal 38.2%-61.8% retracement would imply a move to the 1076-1058 area. A breach of that range would increase the risks for a test of the aforementioned 1029-1020 double-bottom.

Wiggle Room … and Unemployment

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On Wednesday, the S&P rallied 0.5%. Both breadth and up/down volume were positive by a bit less than 2:1. Despite the semi-holiday, total volume was on a par with that for the previous three days. The daily Coppock Curve now has a bullish bias for all 24 S&P industry groups.

Wednesday’s action accomplished two things. Early strength achieved a new recovery, thus locking in the prior 10/21-11/03 five-wave decline as a “C” wave. Then the later pullback was deep enough to qualify as all or part of the “D” wave of a diagonal triangle (aka, a bearish wedge). Since a diagonal is an ending pattern the risk is that the current rally is the final leg for the rally from the July lows. This, plus the divergences mentioned in prior comment, suggests that the index is increasingly at risk of a meaningful decline.
That said, we are inclined to give the rally pattern a little more wiggle room. The pattern appears incomplete and the daily Coppock Curve has the potential to remain constructive for another 8-10 trading days. Thus, the door is still open for a challenge of 1121-1156 (which encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend).

Support is at 1070-1060, then 1030-1020.

Unemployment Rate: 1948-Present
Turning to unemployment, in today’s “Breakfast with Dave,” economist (as well as friend and former colleague) David Rosenberg cited seven reasons supporting his notion that “the jobless rate is very likely going to be climbing much further in the future due to the secular dynamics within the labour market.” His conclusion is that the unemployment rate is likely headed for 12%-13%. Some months ago, we concluded that the unemployment rate could break 11% based on our technical work. Dave’s comment prompted us to go back to the data, and we determined that chart, P&F and Fibonacci resistance existed at 10.8%-11.4%. If that is broken, Fibonacci relationships imply a challenge of 16% +/-. We recall that the government has projected an average of 10% for 2010. While we do not attach a time frame to the above resistance levels, it would seem that the “official” projections are unrealistic.

Divergences to the Left of Us, Divergences to the Right of Us, But …

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On Tuesday, the S&P fell by less than 0.01%. Still, this was sufficient to break a six-day winning streak. Breadth was negative by 8:5 and up/down volume was negative by a 7:5 margin. Total volume fell 3% and is still-below its 21-dma. The daily Coppock Curve now has a bullish bias for all 24 S&P industry groups.

There are more near divergence than we can shake a stick at. For example, while the DJIA is currently at new recovery highs, it is the only major index in that position. Similarly, NYSE common stock breadth is below its October highs, the number of stocks making new 52-week highs is below its ytd peak, the Bullish Percentage Index for the broad-based S&P 1500 has broken down, and the S&P 500 is below it recently violated post-March uptrend. And, for what it is worth, over half of the S&P 500 components are more than 5% below the respective 2009 highs even though the index came within half of one percent of its own high yesterday.

S&P 500 Hourly

In addition to all of this (and more) non-Elliott Wave evidence, we view the wave structure of the current rally as being corrective in form. So, based on all of this, we believe that this rally should prove to be more of an ending than a beginning.

Nonetheless, we need to respect the potential for higher highs. If so, that would mean that the 10/21-11/3 five-wave decline will be counted as the “C” wave of a larger ABC correction. Thus, if the current rally continues on its corrective path, it will likely be a diagonal triangle (aka a wedge), which is an ending pattern. That said, the rally should benefit over the short run from an oversold and improving daily Coppock Curve and an oversold 10-day CBOE put/call ratio.

First resistance is 1096-1101, but the potential for higher highs means that we need to continue to keep an eye on 1121-1156 (which encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend). Support is at 1070-1060, then 1030-1020.

Surprise!

Our website (www.wminsights.com) has been launched. It is only a soft launch, but it has been visited by hundreds in the past two trading days. If you haven’t done so, we urge you to explore and see what the site (and we) will offer. We also encourage feedback; let us know what you like and don’t like. Before long, much (though not all) of the site will be available only to subscribers. If, after viewing the site, you are interested in becoming a “charter subscriber,” or would like more information, please send an e-mail to WMGALLC@gmail.com.

On Monday, the S&P posted its sixth straight gain with a rally of 2.2%. Both breadth and the up/down volume ratio were sufficiently strong to generate the first 9:1 day since August 21. However, while total volume increased slightly, it was still well-below its 21-dma. The daily Coppock Curve now has a bullish bias for 23 of the 24 S&P industry groups.

Those readers who follow the Elliott Wave Principle are probably aware that the consensus count has us on the verge of a Primary third wave decline. For those readers less attuned to the Wave Principle, that means that the S&P is at risk of a decline that could be at least as devastating as the 2007-2009 decline (aka, Primary wave 1). We have consistently taken exception to that count, believing that the market environment is more benign. That said, the strength of Monday’s rally took us by surprise. It probably means that higher highs are likely in the weeks immediately ahead.

In Thursday’s blog, we pointed to short term resistance at 1065-1074 and 1096. And, in our monthly Insights we pointed to a count that still allowed for new rally highs; although we felt that the corrective nature of the rally from the November 2 low weakened that possibility, Mr. Market apparently feels otherwise. Meanwhile, the non-Elliott evidence still shows deteriorating medium term momentum, excessively bullish sentiment, and a declining 22-week cycle, all of which suggests that the rally from last week’s low is best viewed as a short term event in the context of a poor intermediate environment. As such, it should prove to be more of an ending than a beginning.

S&P 500 and 10-day CBOE Put/Call Ratio

Nonetheless, we need to respect the potential for higher highs. There are two primary reasons for this. First, even though the overall structure from November 2 is internally corrective, the rally from last Friday’s low could be counted as a fifth wave. However, Monday’s follow-through was enough to make the third wave the shortest impulse wave within the sequence; that is an Elliott Wave no-no and implies that the rally is extending. Second, Monday’s rally proved to be strong enough to turn the daily Coppock Curve to up, from down; the resulting bullish bias has the potential to last for the better part of the next two weeks. Beyond that, it is worth noting that the 10-day CBOE put/call ratio has moved to its most oversold level in a year.

While the six-day winning streak suggests that the S&P is due for a pullback, the above “internals” imply higher highs, corrections along the way notwithstanding. We have had an eye on 1121-1156 as an important resistance area for some time. It is important because it encompasses both external Fibonacci relationships relative to the entire 2007-2009 decline and internal wave relationships comparing the post-July rally to the March-June uptrend. There is intervening resistance at 1096-1101. Support is at 1070-1060, then 1030-1020.

Announcement

Announcement: Our website (www.wminsights.com) has been launched. It is a soft launch. In other words it is still a bit of a work in progress, but it is ready to play with. We urge you to explore and see what the site (and we) will offer. We also encourage feedback; let us know what you like and don’t like. Before long much (though not all) of the site will be available only to subscribers. If, after viewing the site, you are interested in becoming a “charter subscriber,” or would like more information, please send an e-mail to WMGALLC@gmail.com.

We had hoped to release our monthly Insights today, but finalizing the website and working on our ability to provide webinars and teleconferences was time consuming. The report will be released tomorrow to those who have expressed the desire to be added to our “charter subscriber” list.

On Thursday, the S&P posted its fourth straight gain with a rally of 1.9%. Breadth was positive by better than 9:1 while the up/down ratio was better by a bit less than 5:1. However, total volume fell by 12%. The daily Coppock Curve has a bullish bias for 13 of the 24 S&P industry groups.

Despite all the excitement by the media, the action of recent days is normal. We have made the case that, while the decline from October’s high is impulsive, we could see a decent rally this week. The rally of recent days certainly has been “decent,” but it is still only a normal Fibonacci retracement – and, so far, it is corrective. As a result, the risk is that this four day rally is only a second or “B” wave within a larger decline.

Fibonacci resistance is in the 1065-1074 and the second wave of prior degree is at 1096, so this rally has its work cut out for it. Moreover, almost 40% of the stocks in the S&P are at least 10% below their ytd high. All of this, plus the fact that non-Elliott evidence is poor, e.g., poor on-balance volume, a 22-week cycle top, overbought and deteriorating momentum, and excessively bullish sentiment, suggests lower lows in the weeks ahead. This background suggests that, even if the S&P challenges its recent highs, there will be more and greater divergence than have been recently apparent.

Our main support focus is still on the October 2 low at 1020 is fragile support. That is important because a break of that level will signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Fragile Support

Editor’s Note: We are currently writing November’s monthly Insights. In addition, we are putting the finishing touches on our new website. The site should be functional within a few days and we will finally begin to take subscriptions a few days after that. At this point, we expect to e-mail the Insights report to those who have informed us of their intent to subscribe. In addition, if all goes well, the comments that have appeared on this blog will only be available on the website. If you are interested in becoming a charter subscriber, or would like more information, please send an e-mail to WMGALLC@gmail.com.

On Wednesday, the S&P posted its third straight gain with a rally of 0.1%. It could have been better, but a sharp final hour sell-off erased most of the day’s earlier strength. Even though the index finished on the plus side, both breadth and the up/down volume ratio were negative. Moreover, total volume increased. So, even though the index suggested that Wednesday was an “up day,” it was essentially a “down day.” The daily Coppock Curve has a bearish bias for 22 of the 24 S&P industry groups.

S&P 1500 A-D Line

The “conundrum” between the hourly and daily charts that we spoke of recently has disappeared. Both charts suggest that the decline from mid October to early November was a five wave pattern. Given the non-Elliott evidence (i.e., poor on-balance volume, a 22-week cycle top, overbought and deteriorating momentum, and excessively bullish sentiment), this five-wave decline is likely the first leg of a larger correction.

If so, the recent 1029 low will not hold up, which may mean that the October 2 low at 1020 is fragile support. That is important because a break of that level will signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Nearby resistance is at 1061-1067.

Lower Lows Still Likely

Editor’s Note: We are currently writing November’s monthly Insights. In addition, we are putting the finishing touches on our new website. The site should be functional within a few days and we will finally begin to take subscriptions a few days after that. At this point, we expect to e-mail the Insights report to those who have informed us of their intent to subscribe. In addition, if all goes well, the comments that have appeared on this blog will only be available on the website. If you are interested in becoming a charter subscriber, or would like more information, please send an e-mail to WMGALLC@gmail.com.

Yesterday, we described Monday’s action as “all over the place.” Tuesday was much different; it was an “inside day” (i.e., a lower high and higher low than those seen on Monday). As a result, Tuesday’s 0.2% gain was more modest than Monday’s 0.7% rally. Internally, however, Tuesday was a better day; breadth was positive by a 5:2 margin (versus Monday’s 4:3 spread) and upside volume increased by 20% despite an 11% decline in total volume. Nonetheless, the daily Coppock Curve has a bearish bias for all 24 S&P industry groups.

Cumulative Up-Down Volume (14-dma)

In yesterday’s post we suggested that Tuesday’s action would help determine whether a fifth wave down from last month’s high was extending or whether the index has begun a somewhat volatile corrective process. Taken by itself, Tuesday’s inside day, together with the healthy internals, leans toward the latter scenario.

Nonetheless, the S&P is by no means out of the woods. On-Balance volume is on the verge of breaking an important trend line. If it does, it would confirm the S&P's breach of a similarly important line. Moreover, it appears that the 22-week cycle has peaked, the weekly Coppock Curve is positioned to have a bearish bias through the rest of this year, and sentiment is at excessively bullish levels. All of this, together with the impulsive character of the decline from last month’s high, implies lower lows in the weeks ahead.

Our focus is on the October 2 low at 1020. A break of that level will effectively signal that the rally from the July lows is over. Below that, 1013 is a 38.2% retrace of the July-October rally and 985 is a 50% retracement. But, as explained in recent posts, more important support may be seen at 958-935 and 884-869.

Nearby resistance is at 1049-1054.