It Was All About Confidence

On Tuesday, the S&P 500 came back from the Memorial Day weekend with a 2.6% gain. Advancers outpaced decliners by more than an 11:1 ratio and, while some might argue that volume remained well below it’s 21-dma, we would point out that 424 of the stocks in the S&P rallied on increased volume. Near term momentum for most of the 24 industry groups remains under pressure, but Tuesday’s action seems to be a step in the right direction for the short term rally into late June that we discussed in the recent Insights. For Elliott Wave students, Tuesday’s action did much to confirm that the index completed a May 10-21 flat (3-3-5) correction.

Much of the “reason” for this rally was attributed to a better-than-expected consumer confidence report issued by the Conference Board. For a change, and at the expense of being called a “Keynsian Technician,” we agree. The data suggests that consumer confidence flashed a point and figure “buy” signal. While the index is still below its resistance trend line, it did break above a prior column of X’s. We would like to see a pullback and then a new rally high to confirm a consumer confidence uptrend, but the breakout to the highest levels since last October is also a step in the right direction. Currently at 54, the preliminary P&F objective is for a move into the 70’s.

Primary resistance for the S&P 500 remains at 930, 944, and 982. But, as we mentioned in recent posts, 912-916 may be more important than we gave it credit for.

The recent weakness reiterated the importance of first support at 879. For now, second support remains at 827.