Resilience II

In yesterday’s post, we suggested that the rally had been surprisingly resilient and that the potential for further gains seemed to be reasonably good. The resilience and the potential; were evident if Thursday’s action as the S&P gained 1.6% and not one of the 24 industry groups declined.

Still, near term momentum is overbought and a number of near term indicators are diverging. We respect those conditions and believe that the potential for a consolidation remains high.

With that in mind, we have been bullish on the medium term trend and still expect that the S&P 500 has the wherewithal to maintain an underlying bullish bias for another month or more with the potential to penetrate January’s high at 944. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the medium term uptrend.

The bottom line is that, while this rally has already met our expectation that it would be the best advance since the 2007 “bull market” peak, still higher highs are likely.

Nearby support is at 817-815. A decline through that range will confirm that that what should be the first upleg from the March 6 low is complete. Second support is at 789-766.

Despite our expectation of higher highs in the weeks ahead, we continue to view the post-March rally as a corrective or counter-trend pattern from an Elliott Wave perspective. Thus, this should ultimately prove to be a bear market rally. Thus, as is often the case in large degree bear markets, we have to distinguish between structure and strength. So, the expectation of higher highs is not an “all clear” sign. The S&P is challenging first resistance at 863-883; beyond that, 944 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that benchmark will do much to indicate that a complete Elliott pattern from the 2007 bull market high is in the books.