Stocks Retreat; Gold Reverses its Uptrend

Our monthly April Insights was released today and is being e-mailed out to our lists today and tomorrow. If you would like a copy, please e-mail me at wgmurphyjr@gmail.com.

On Monday, the S&P broke a four-day winning streak with a loss of 0.8%. Common stock breadth was negative by a ratio of about 2.8:1. Even though total volume was a bit lower than that on Friday, almost twice as many stocks fell on increased volume than rallied on increased volume. All of this put greater pressure on near term momentum, which has the potential to remain weak for most of the rest of the month,

Despite these difficulties, no uptrends were violated and the “cup and handle” base that we referred to in a previous post remains intact.

From an Elliott Wave perspective, we have suggested that the overall pattern from the March low has been increasingly difficult to count impulsively. It remains more corrective than not, so our thoughts that this is a bear market rally remains valid. However, the rally has already reversed the decline from the January high and, in turn, has satisfied the minimum requirements for a complete pattern from last May’s high. This, plus the breakout through 833, implies further potential to at least 863-883, which is both Fibonacci and fairly substantial resistance. Beyond that, 945 is an approximate 38.2% retracement of the decline from last May’s high. A rally through that level would indicate that the entire decline from the bull market peak had been reversed.

As for support, a decline through 779 would confirm that that the rally from the March 6 low is complete, regardless of whether we ultimately end up counting it as a complete pattern, or merely wave “A” or “1” of a larger rally pattern. Further weakness toward 777-735 would be likely.

Consumer Discretionary, Financials, Industrials, Materials, and Tech are showing relative strength.

Finally, gold broke both important support and an important trend line today. This tends to confirm that the rally from last October’s low has been reversed. Our assumption until proven otherwise is that those October lows near 680 on the nearby futures contract will be tested.