S&P Rallies Through Downtrend Line

Wednesday was a solid day for the S&P 500. Although it opened sharply lower, the sell-off lasted less than an hour, allowing the index to recover – and then some. The day ended with a 1.7% gain and NYSE common stock gainers outpaced the losers by a solid 7:2 ratio. All of this allowed the index to rally through the downtrend line from last week’s high and mitigate the damage done by Monday’s sharp decline.

However, we hesitate to say that Wednesday’s rally decisively reversed the downtrend of recent days. Momentum is still weak and the put/call ratio is still overbought. So, while today’s action was promising, the market may still need more time to correct March’s gains before it is positioned to extend the bear market rally. This suggests that the index could be range-bound in coming days.

For Elliott fans, today’s rally not only broke the downtrend from last week’s high, it also did much to suggest that the decline itself is a corrective (counter trend) structure. In turn, that corrective structure helps confirm our thoughts that an “A” wave rally ended last week, the index is now in a “B” wave pullback, and a post-March “C” wave to new bear market rally highs is still to come.

For now, we see no need to make adjustments to the support and resistance levels indicated in recent posts. First (chart (and Fibonacci) support is at 775-766 (with particular focus on 773-772), followed by 750, and 730-725. Last Thursday’s 833 high is resistance.