No Holiday Here

Our monthly April Insights is available. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.

Thursday was a bit of a surprise, at least to us. In yesterday’s post we suggested that today was likely to be a slow day, reflecting the expected holiday-related trading. Instead, the S&P rallied 3.8% and volume hit its highest level in more than two weeks, resulting in the fifth 90% up day since the rally began in early March. (In order to be a 90% up day, advancing issues must represent at least 90% of the total of advancing and declining stocks AND up volume must be at least 90% of the total of up and down volume.)

Obviously, the uptrend from the March low remains intact. However, there are negative divergences. Not the least of these is momentum, which has had a bearish bias and still has the potential to remain under pressure for most of the rest of the month.

We have made the case that the Elliott Wave pattern from the March low is more corrective than not. That said, the rally from the March 30 low can be counted as a legitimate five-wave structure, but it may actually be diagonal triangle, which is an ending pattern. This, plus the momentum divergence referred to above, suggests that the rally may need to consolidate its gains. We chose the word “consolidate” rather than “reverse” out of respect for the fact that medium term momentum is constructive and appears to have the potential to maintain a bullish bias into late May or early June. This implies further strength to 863-883 and perhaps beyond, intervening pullbacks along the way not withstanding. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high.

In sum, we have been of the opinion that this rally from the March low had the potential to be the best rally since the 2007 peak. That goal has been achieved, but still higher highs are likely.

Nearby support is at 815-817. A decline through that range will confirm that that the uptrend from the March 6 low has been reversed, regardless of whether we ultimately end up counting that rally as a complete pattern, or merely the first leg of a larger, unfinished uptrend. As such, the post-March uptrend deserves the benefit of the doubt.