In our most recent posts, we mentioned that, while a pullback to 1015-1001 would be fairly normal, we had to be alert to the possibility that the S&P would not make it to that range before reversing back to the upside. So it is possible that Thursday’s pullback to 1016 may be all we get.
S&P with Dominant Trend Lines
With that in mind, it is important to note that both daily and weekly momentum have recently turned up and both have done so while still on the overbought side of neutral. This type of behavior is often indicative of a linear uptrend. In such a case, an important top is often signaled when momentum turns down again and the trend line is breached. In the current situation, daily momentum implies a linear uptrend from the July lows (the blue line in the nearby chart) and the weekly indicator signals a linear uptrend from the March low (red line).
In the meantime, we still think that higher highs are likely before this post-March bear market rally runs its course. The Elliott Wave structure, momentum, and sentiment all support this view.
Under normal circumstance, the completion of the rally pattern from the August 17 low would imply the potential for a pullback into the 1015-1001 range. We will still keep an eye on that area, but the potential triangle we mentioned above is inherently a trading range and the S&P may not make it to as low as 1015-1001. Indeed, if our count is correct, the triangle may already be in the “D” wave position of its ABCDE structure. So, a breakout to new rally highs could happen sooner rather than later.
For now we will continue to use 1015(6)-1001 as first support. Regardless, it will take a full blown decline through 979-978 to suggest that something more serious is afoot. The July low itself at 869 is still viewed as tactical support.
Chart and Fibonacci resistance is indicated at 1037-1058, 1070-1081, and 1117-1127.
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