Relief Rally

Editors Note: Yesterday I gave a presentation to the Market Technician’s Association entitled “Elliott Wave in Today’s Markets.” I will be happy to e-mail the Power Point file (30 slides) to anyone who cares to e-mail me (wgmurphyjr@gmail.com).

On Thursday the S&P 500 broke a three-day losing streak with a rally of 0.8%. Breadth was modestly positive and upside volume was 70% higher than downside turnover. However, total volume fell to its lowest level of the week, and our model of buying interest is at its lowest level since January. In addition, near term momentum is still weak and is positioned to remain that way into the final days of the month.

S&P 500 with Daily Coppock Curve

In our previous post, we suggested that we could count five waves down from June’s, peak; as such, a relief rally of only a few days duration would not be surprising. Yesterday’s rally fits in with that scenario and, in fact, was high enough to lock in the decline from the June 11 high to the June 17 low as a complete pattern.

On an hourly chart, both the Elliott Wave fourth wave of prior degree and a 38.2%-50% retracement occur within the 924-930 range. That range would, therefore, seem to be important resistance and a reasonable objective. Beyond that, resistance is indicated at 935-936, then the 956 rally high.

If we are correct about the five-wave decline from the June 11 high, then that decline should be the first leg of a larger unfinished downtrend. A second leg down should be at least as long as the first but, for now, we will continue highlighting support in the 866-879 range. A breach of that range will be of tactical importance in that it will be a virtual confirmation that the index was engaged in an intermediate (3-5 month) correction.