Phase Two

Wednesday was a nice day. The S&P 500’s 2.16% gain was the best since April 9. It was also broadly based; 22 of the 24 industry groups in the “500” gained ground. We are inclined to treat this as the beginning of a second upleg for the larger rally from the March low.

In recent posts, we have regularly made the case that near term rates of change were positioned to bottom by early May, while intermediate momentum was likely to maintain its post-March bullish bias into June. This combination suggests that a coming near term bottom would also have bullish intermediate implications. In addition, the attached point and figure (P&F) chart – showing the backing and filling of recent days as suggested by numerous breaks of trend lines – implies that the S&P has completed a consolidation or continuation pattern and has begun a new (second) rally phase from the March low.

The P&F count suggests a challenge of 895, but we are inclined to look for resistance at 897-919, then 944. There is intervening resistance near 875. Nearby support begins at 865-867.

In this morning’s post, we mentioned that the US long bond was attempting to resolve the conundrum between the Elliott Wave count and the underlying non-Elliott Wave environment. Today’s decline proved to be a quick – and successful – test of what we referred to a second support. The 121-123 range is trend and Fibonacci support. If that range is violated, then lower lows are likely. The oversold condition may not be able to stem the tide.