Could it Be?

On Tuesday, another late-day rally allowed the S&P 500 to finish with a 0.4% gain. However, breadth was very modestly negative and downside volume was 63% of the total. So from the perspective of both breadth and volume, Tuesday was not a particularly good day.

That said, the S&P did manage to peek above the June highs and the DJIA did rally through 8878. From the perspective of the S&P, this run to a new recovery high is separate from the first leg up from the March low to the May-June high. This new high may be part of a “B” wave or part of a “C” wave, but the March-May/June rally was a complete pattern. This new high is something new and different.

S&P 500 with Post-Fibonacci Resistance Levels

At the same time – and as discussed in Monday’s blog – Tuesday’s high by the DJIA locked in the decline from the October 2007 high to the March 2009 low (or perhaps the November 2008 low) as a complete pattern. In that regard, the structure of the DJIA is finally in line with the structure of the S&P.

We have been – and still are – of the view that the overall uptrend since March is a bear market rally. It would be interesting if, following the modest new recovery high by the S&P and the breach of an important benchmark by the DJIA, the indexes reverse course.

With all that in mind, the potential for a rally through 956 still exists. The next objective is arguably at indicated chart and Fibonacci resistance in the 1007-1048 range.

The recent strength has not changed our view that the 879-866 range is tactical support; if it is violated, we would be inclined to look for further weakness toward at least 812-777.