Nice Start to the New Quarter

Editor’s Note: Despite the violent weather, we managed to make it to one of our favorite places in the world – Cape Cod – where we hope to spend the better part of the next two weeks. Depending on the sun, the fishing, and the relatives these blogs may be a little sporadic, but we will endeavor to keep a pretty regular pace.

The S&P 500 gained 0.4%on Wednesday. Breadth was positive by a 10:3 ratio, but volume fell by 19% to its lowest level since the first day of the year. Similarly, our measure of buying interest remains at its lowest level since January. In that regard, it seems that investors were not very attracted to stocks. The daily Coppock Curve momentum indicator has a bullish bias for 23 of the 24 S&P industry groups.

We were alert to the idea that the S&P would benefit from constructive end-of-the-quarter and holiday underpinnings, and the index has taken advantage by rallying through important resistance at 927. The positive near term momentum environment appears positioned to remain in place for most groups into mid month. Thus, higher rally highs are quite possible – even probable – over the next two weeks. Thus, we will be alert to the idea that new post-March highs will be achieved.

That said, we continue to view this recent “strength” as a short term event. Intermediate momentum is deteriorating, and we believe that the 22-week cycle peaked in early June. Moreover, the bullish percentage indicator for the DJIA and the NASDAQ are still in overbought territory, but are below their June peak. The indicator for the S&P is no longer overbought, but is also below its June peak. Thus, we continue to believe that once this short term rally runs its course, intermediate pressures will reassert themselves. So enjoy it while you can.

S&P 500 Bullish Percentage Indicator

With the breach of 927, the 935-936 area takes over the first resistance position, with second resistance indicated at June 956 rally high. We continue to view 879-866 as tactical support; a breach of that range would open the door for further weakness toward at least 812-777.