In our weekly (and monthly) newsletters we made the case that the market was positioned for its best rally since the 2007 bull market peak. We believe that is a realistic possibility -- and that the rally from the March low is part of a larger uprtrend. However, nothing goes straight up and this post-March rally appears to be on its last legs.
That said, Thursday was a good day. The S&P rallied by more than 2.3% and -- in contrast to Wednesday -- underperformed breadth. While total volume fell, the upside to downside volume ratio expanded nicely. BUT, despite all this, the caution we expressed in Wednesday's post is still present. Near term momentum for both the S&P 500 and a majority of its 24 industry groups is still positioned to begin deteriorating by the end of the month, the put/call ratio is overbought, and a case can be made that this afternoon's surge was a breakout -- or a thrust -- from a triangle. The Elliott Wave analyst in us thinks that this thrust is a last gasp, not the acceleration needed to rescue the structure of the rally. We remain of the view that the rally's structure is corrective (counter trend) and subject to a deep retracement.
All that said, the S&P remains above its dominant hourly post-March uptrend line, which is currently near 803. Thus, a decline decisively below 792 hourly would violate both chart and trend support and pave the way for further weakness toward 770 and perhaps lower. First resistance is at 850. Second resistance is 875; a rally through that level would be significant development.
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