Bulls and Bears. And Pigs?

First things first. In yesterday’s Insights, we neglected to include support and resistance for 10-year yields. Chart and trend resistance is at 3.0%-3.2%. Support is 2.5%-2.4% then 2.1%-2.0%.

On Monday, the S&P 500 declined a relatively modest 1.0%. Common stock breadth was negative by a 3.2:1 ratio, and 17 of the 24 industry groups in the S&P 500 lost ground. These bearish figures are mitigated by the fact that volume was noticeably below Friday’s levels. Also, it was only the 13th decline since the March low, and the intermediate trend is still up.

As we have noted before, the media needs reasons and the apparent “reason” for today’s decline was the outbreak of swine flu. More realistically, we prefer to treat today’s action as part of a consolidation that has been apparent for as much as several weeks. Evidence of that is the fact that near term momentum has been weak for most groups since late March. There is, however, evidence of rotation, so the pressures have been reflected in a time-consuming consolidation rather than a trend-damaging decline. Through it all, intermediate momentum, as well as the dominant trend, have held up well.

Nearby chart and Fibonacci support is in the 796-771 range. However, from a P&F perspective, important intervening chart and trend support still exists at 828-825. Resistance is at 875-877, then 897-919, then 944.

The unweighted CCI commodity index declined over 2% on Monday. (That’s an event that only happens about 7% of the time.) Prior to that decline, the index appeared to be on the verge of a breakout through its post-October trading range. We view the trading range as a pause within a larger downtrend from last July’s high and, with that in mind, 380-384 is important resistance, while 344-341 is potentially key support.