April Flowers Are Part of a Bigger Garden

The S&P 500 gained 9.4% for the month of April. It was a broad-based advance in the sense that 22 of the 24 industry groups were higher for the month and the longest losing streak during the month was only two days. From our perspective, however, the more important statistic is that the S&P rallied 18.7% during March and April.

That 18.7% two-month rally is the sixth time since 1974 that the S&P has posted a two-month gain in excess of 14.5%. The other five were January-February 1975, October-November 1982, January-February 1987, September-October 1998, and October-November 2002. Four of those represented confirmed breakaways from some of the most important bottoms in history. The exception (1987) confirmed a rally that still had six more months of life left in it. In all five cases, the next (third) month was also an up month; this would seem to bode well for May.

There are other signs that the post-March rally still has more life left in it. The NYSE a/d line has moved above its January high, as have a number of point and figure indicators. Moreover, intermediate momentum still has the potential to maintain a bullish bias into June, and the breakout of recent days has a trending (impulsive) look to it from an Elliott Wave perspective. All of this does much to confirm yesterday’s post where we suggested that a second phase of advance had begun.

This implies that the current rally will have a Fibonacci relationship to the initial March-April rally. While we are inclined to look for resistance at 897-919, then 944, our main focus is the latter level. A rally through that benchmark will confirm a reversal of the entire 2007-2009 decline. In that regard, it is not a stretch to suggest that other resistance levels are relatively irrelevant. We believe that 944 will be violated.

Nearby support begins at 865-867, but key support is 825-830.