A Pullback Within an Uptrend

The S&P fell 0.5% on Wednesday. This marked the first time in three weeks that the index had back-to-back losses. Overall, though, it wasn’t a bad day. Many of the indexes (but not the “500”) recorded an inside day (a lower high and higher low than the previous session), which is an indication of indecision. Total volume was negligibly higher than Tuesday’s turnover, but despite the fact that declining issues on the NYSE outpaced the gainers by a ratio of more than 2:1, downside volume was only 20% higher than upside volume.

The volume and breadth data suggest that the big-cap stocks held up relatively well on Wednesday, with more of the pressure on the smaller cap issues. Indeed, breadth for the S&P 500 was negative by a ratio of 1.9:1; this compares to a 2:1 ratio of decliners to gainers for the for the S&P 600 Smallcap index.

S&P 500 with Daily Coppock Curve


In our view, the pullback of recent days is probably a fourth wave from the July lows, though it may prove to be a “B” wave. The main difference between the two is that a fourth wave pullback will likely be shallower than a “B”. However, both patterns suggest that the final highs have yet to be seen.

With the above in mind, the 957-950 area should be decent support. It represents both a typical Fibonacci range for a normal fourth wave and it also represents June’s topping formation prior to the decline into July’s low. Thus, a pullback into that range would be a normal test of the recent breakout point. Below 957-950, we will be inclined to put more focus on the July bottom at 888-869, which we upgraded to tactical support in the recent STR.

July’s breakout opened the door for a challenge of chart and Fibonacci resistance in the 1007-1048 range. Our view that the decline of recent days is either a fourth wave or a “B” wave keeps this range in play.