A Thank You and a Conundrum

Once again, we had a record number of hits and a record number of individuals on the blog. In addition, we have received comments expressing the view that our blog has become their favorite. We appreciate the reaction and the feedback. Thank you.

On Wednesday, the S&P 500 gained 0.7%. The gain could have been better, but the index fell fairly sharply following what can only be described as a widely expected announcement from the Fed following its two day meeting. Nonetheless, breadth was solidly positive, as was the up/down volume ratio. That said, total volume fell for the second consecutive day even as near term momentum remains negative. This combination suggests that we view the “rally” of the past two days with suspicion.

Overall, the decline from the June 11 high presents us with a bit of a conundrum. The daily chart for the DJIA can easily be counted as a five wave structure. This suggests that the downtrend of the past two weeks is the first leg of a larger downtrend. However, a similar chart for the S&P 500 cannot be counted in a similar fashion. This nominally leaves open the possibility of a coming test of the June high.

Both charts would seem to have one thing in common. They suggest that the indexes are positioned for a short-lived rally. Moreover, a number of momentum indicators have move to the oversold side of neutral.

As a result, we will stick with our comments of recent posts. We will continue to use 927 as first resistance; followed by 935-936, then 956. Similarly, we will continue highlighting support in the 879-866 range. A breach of that range will be of tactical importance so if 879-866 is violated, it would not be a stretch to look for further weakness toward at least 812-777.