Monday started off the new week on a firm note. The S&P 500 rallied 3.0% while both breadth and volume qualified as a 9:1 day (both advancing stocks and upside volume represented more than 90% of the total of all stocks that changed price). There is a case to be made that this action represents a potentially significant upside reversal, but we are not yet prepared to take that step.
Total volume was significantly below average. Moreover, it appears that even if the market does mount another challenge of 930 and higher, last week’s damage may have been enough to meet such a rally with important negative divergences. This condition, plus the corrective Elliott Wave structure of the rally, does not bode well for a sustainable rally from current levels. Moreover, the near term momentum pressures that became evident last week still have the potential to remain in place through May.
That said, we cannot rule out further strength to new highs. Indeed, we dealt with that scenario in some detail in this weekend’s Insights. However, many intermediate indicators are at or near important overbought levels, sentiment is pushing excessively bullish readings, and important trading cycles have little, if any life left in them.
Can the market move higher? Yes it can. But the weight of the evidence suggests that Monday’s rally is more likely part of an ending rather than a beginning.
Resistance exists at 930, 944, and 982. Support is apparent at 879 and 827.
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