Last Gasp? – Plus Yields

The S&P rallied 1.2% on Thursday, aided by good breadth (NYSE gainers outpaced losers by almost 5:1) and better volume. Moreover, the index broke out through a “triple top” on the point and figure charts.

That’s the good news. The bad news (for now) is that we are inclined to count Thursday’s breakout as a last gasp from the July lows (a fifth wave in Elliott Wave terms). However, and as mention in prior reports/blogs, the evidence suggests that this rally is only the first leg of a larger uptrend from those same July lows (the A of an ABC rally). Thus, while the “500” is at risk of a fairly sharp decline over the near term, that correction will likely be followed by another run to higher highs. At that point we will begin to be more concerned about the end to this post-March bear market rally.

The S&P never did test the 957-950 area mentioned in yesterday’s post. As a result, we will give this current “last gasp” the benefit of the doubt as long as the index holds above 968.65. A violation of that level would be an indication that the entire rally pattern from July 8 was complete and that a reaction (a “B” wave) of a week or more was under way.

The door remains open for a challenge of chart and Fibonacci resistance in the 1007-1048 range.

10-Year Yields

Ten-year yields are at an interesting juncture. In the recent STR we mentioned that the window for a challenge of June’s high was closing rapidly. Thus, if yields were to complete a five-wave rally from December’s low, they had to do so quickly.

That said, it appears that both the daily and weekly Coppock Curves are peaking. The Coppock is our favorite momentum measure, and the current condition suggests that an intermediate decline is imminent. However – and this is a big “however” – the rally from the July low can be counted as a five wave pattern. So, even, if a downside reversal occurs here, we can still nominally count the entire pattern from the December lows as a five-wave pattern in its own right. The “failure” to record new highs in recent days would suggest a potentially deep retracement in coming months, but a five wave post-December-July rally would imply that the December lows will not be violated. Indeed, the ability to count five waves since December would be a piece of initial evidence that the 28-year down trend in yields had ended.

A decline back through 3.29% would imply that both the rally from the July lows and the larger uptrend from last December low was over.