So Close, Yet So Far

The S&P 500 opened on a firm note Thursday morning, carrying to just shy of 930 before Mr. Market decided that enough was enough for now. Perhaps the fact that the “500” had moved to within 1.5% of our benchmark 944 was too much to bear. Regardless, the index turned tail and finished the day down 1.3%. This was the biggest setback since April 20 and occurred on increased volume. Eighteen of the 24 industry groups were lower for the day.

The hourly chart violated the 910-909 short term support range mentioned in yesterday’s post. That effectively reverses the rally from the May 1 low. For now, that is all we are going to give this pullback credit for. As such, the current pullback may not go much below the 891-890 area, which is a 61.8% retrace of the rally from May 1. If it does, we would have to entertain the idea that the S&P is correcting the larger rally from the April 21 low.

We are inclined to think that a correction of the rally from the April 21 low may be a worst case. Breadth is leading the indexes, intermediate momentum is still positioned to maintain a bullish bias into June, and a number of P&F indicators are at confirming multi-year highs. We remain of the view that higher highs are likely in the days (and weeks) ahead.

We have no changes to our March-May resistance and support levels. Thursday’s 929-930 high is resistance, but 944 remains our main focus.

Key support relative to the current upleg from the April 21 low is at 848-847.