The Bear is Still in Control After Best Month Since 2000

What kind of a month was March? The S&P rallied 8.6%, which was the best monthly performance in nine years. Even so, the index recorded both a lower low and a lower high when compared to February. Despite March’s finish, the S&P recorded its sixth consecutive quarterly loss with a decline of 11.7%. According to our records, the six-quarter losing streak ties the all-time record.

While those stats may be interesting, we presented them in order to offer another comparison. Our favorite quarterly momentum indicator, which peaked in 2Q 2007, is positioned to remain weak through most (if not all) of 2010. The monthly indicator, which has been weak since October 2007, should not bottom until the second half of this year (perhaps as early as July). So, while we have recently been viewing the intermediate background in a favorable light, it is important to remember that, when compared to the long term trend (monthly data) and the very long term trend (quarterly data), the post-March rally is likely to be nothing more than a bear market rally.

Shorter term, Tuesday’s rally did little to heal the damage related to the recent downside reversal. The trend remains down, short term momentum is still weak, and the put/call ratio is overbought and deteriorating (as are most stocks). Thus, the market likely needs more time to correct its recent gains before it is positioned to continue its bear market rally.

For Elliott fans, the above thoughts suggest that the just completed rally was an “A” wave, the index is now in a “B” wave pullback, and a “C” wave to new bear market rally highs is yet to come.

First (chart and Fibonacci) support is at 775-766 (with particular focus on 773-772), followed by 750, and 730-725. For now, the only resistance worth considering is Thursday’s 833 high. Utilities, Healthcare, and Consumer Staples are currently showing the best short term relative strength characteristics.