Curiosity Killed the Cat

Editor’s Note: The monthly Insights was released over this past weekend. For those not on the distribution list and wishing to receive a copy, please send an e-mail request to wmgallc@gmail.com.

On Thursday, an afternoon rally turned what had been a lackluster day into another solid (0.9%) gain. As a result, the S&P posted its third consecutive up day, which is something that hasn’t happened since June 1. Once again, breadth ratios were solidly positive, but volume ratios were mediocre. Total volume fell 8%, but our buying interest (accumulation) line has poked above the selling pressure (distribution) line, suggesting that this rally has begun to stir some curiosity.

S&P 500 with Near Term and Intermediate Momentum Oscillators
That “curiosity” may continue a while longer. We have suggested that near term momentum is positioned to maintain a bullish bias into the end of July, and that is still our outlook. But we know that curiosity and cats make for a bad combination, and the same might be said here for traders. We believe that the deteriorating intermediate background will withstand the current near term influences and regain dominance. If so, we would expect this rally to be fully retraced – and probably more. That is why we have referred to this rally as an ending, not a beginning. In Elliott Wave terms, it would be the “C” wave within an ABC pattern from the March low. So be careful out there.

Beyond 956, there is 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.