On Wednesday, the S&P fell by less than 0.1% and the DJIA lost 0.4%. Was it a down day? No. Breadth was positive, as was the up-to-down volume ratio. So, the underlying stats were quite constructive. Perhaps the biggest negative was that volume declined yet again.
During the day, the S&P made another recovery high as it approached 960. While the daily a-d line has also recorded new (confirming) post-March high, our accumulation (buying interest) indicator is near the March low, the bullish percentage indicator did not make a recovery high, and only 10% of the S&P stocks are within 10% of their 52 week high. This, combined with an overbought and deteriorating intermediate momentum condition, suggests that, despite the new recovery high by the “500,” most of its components are not near their respective highs. They are missing in action.
S&P 500 with Diverging Bullish Percentage Index
The above supports our view that the rally for the early July low is a short term event. In other words, it is an ending – an extension – of a mature bear market rally pattern. It is not the beginning of a new rally.
Further strength decisively through 956 would open the door for a challenge of 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.
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