Is That All There Is?

On Tuesday the S&P 500 started slowly, but finished with a bang (or at least a pop). The index recorded its fourth straight gain with a rally of 0.3%. Once again, both breadth and volume ratios were solidly positive. In addition, the late day pop allowed the index to enter the important 1007-1048 resistance range.

We have made the case in recent posts that the rally from last Wednesday’s low at 968.65 is best counted as the fifth wave from the July 8 bottom. Thus, 968.65 is an important benchmark; a break of that level would indicate that the July-August rally is complete.

15 Minute Chart of the S&P 500

That said, we can now count a full five wave sequence up from the July low. The “look” leaves something to be desired and we prefer to think that the S&P is not that far along, but a five wave count is possible. At the same time, we would note that only 97 of the 500 stocks in the S&P made a new ytd high on Wednesday, despite the fact that the index itself made a decisive new recovery peak. Indeed, over 200 of the index’s components are more than 5% below their ytd high. This narrow participation is a sign of fatigue that, together with the possible five wave pattern, puts us on alert. In addition, the deteriorating Coppock condition described in previous posts is another near term cause for concern.

If the index is completing the rally from last Wednesday’s low, then a decline decisively through the 986 area would be an early warning sign. Nonetheless, and as stated earlier, we will continue to give the rally the benefit of the doubt as long as the index holds above 968.65. As long as that is the case, the door remains open for a deeper probe of chart and Fibonacci resistance in the 1007-1048 range.

A violation of 968.65 would indicate that the entire rally pattern from at least the July 8 low was complete.