Count Conundrum Continues

Editor’s note: A special Insight on Inflation was sent to those on our distribution lists on Friday. Earlier today, we began e-mailing a Short Term Review of the markets. If you do not receive the STR by tomorrow morning, e-mail us at wmgallc@gmail.com.

The S&P 500 rallied 0.9% on Monday on decent breadth and low volume. Near term momentum is now positive for a majority (14) of the 24 S&P industry groups. Higher rally highs are anticipated.

Several days ago, we wrote about the conundrum between the DJIA and the S&P. The DJIA’s June sell-off was a reasonably clean five-wave pattern, while the S&P’s decline had much more of a corrective look. That “corrective look” was confirmed on Monday when the S&P rallied through the 927.09 recovery bounce on June 19. This locked in a three-wave decline. Moreover, the S&P has retraced almost 61.8% of its June sell-off, while the DJIA has yet to retrace 50% of that same decline. Thus, it is not inconceivable that the S&P will be able to challenge its March-June rally high, while DJIA fails to do the same.

All of this suggests that a challenge of the highs will be accompanied by more and greater negative divergences than those that already exist. Thus, we continue to think that any near term strength will be a late stage move (an ending) rather that the beginning of an important new rally.

First resistance for the "500" at 927 is still nominally intact. In anticipation of higher highs, next resistance is indicated at 935-936, followed by 956. We will continue highlighting tactical support in the 879-866 range; a breach of that range would open the door for further weakness toward at least 812-777.