A Nasty Day

April's Insights has been released. To request a copy, please e-mail me at wgmurphyjr@gmail.com.

Tuesday was nasty. The S&P’s 2.4% decline was the second largest since the current rally from the March low got under way. All 10 S&P sectors lost ground, and total breadth was negative by a ratio of about 15:2. Volume was negative by almost 5:1. Even though total volume was a bit lower than Monday’s, over one-third of the all NYSE common stocks declined on higher volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,

Despite these difficulties, the hourly P&F uptrend line from the March low remains intact, and first support at 779 has not been challenged.

From an Elliott Wave perspective, many analysts are referring to the rally to date as “wave 1.” To us, the pattern from the March low is more corrective than not. Thus, our thoughts that this is a bear market rally remains valid. That said, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete five-wave decline from last May’s high. This (plus the rally through 833) implies further strength toward 863-883, which is both Fibonacci and fairly substantial chart resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.

As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger pattern. Through 779, further weakness toward 777-735 would be likely.