Resilience

Wednesday was the second day in a row when merely knowing the closing results (in this case a gain of 1.3%) did not tell the larger story. For the day, the index recorded a lower low and a lower high when compared to Tuesday’s trading. The low occurred early in the morning, extending the downtrend from Monday’s high. However, from that point on, the hourly chart reveals the beginning of a new uptrend, complete with the first higher hourly high since Monday’s peak together with a surge through the hourly downtrend line. So, while the daily data still shows some superficial pressures, the potential for further gains over the very near term would seem to be reasonably good.

In yesterday’s post, we observed that no harm had yet been done to the trend. That is still the case as the uptrend from March’s low has been surprisingly resilient even in the face of recent near term overbought and diverging conditions. Nonetheless, we respect those conditions and still believe that the potential for a (more visible) near term consolidation remains high, even allowing for the aforementioned potential for some follow-through on Wednesday afternoon’s reversal.

We have been – and remain – moderately bullish on the medium term trend and still believe 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. This condition probably does much to explain the resilience of the rally to date. Thus, an expected near term consolidation will likely serve to be a healthy, reinvigorating event within the larger 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.

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. As is often the case with large degree bear market rallies, we have to distinguish between structure and strength. So, our expectation of higher highs is not an “all clear” sign. First resistance appears to be 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 Wave pattern from the 2007 bull market high is in the books.