An Important Juncture

On Thursday, the S&P 500 closed at the day’s high for a gain of 0.4%. Breadth was positive by 7:6, and 17 of the 24 S&P industry groups were higher. Conversely, the up/down ratio was negative by an 8:7 margin; total volume was modestly better than the prior day’s total.

By our reckoning, the S&P is at an interesting juncture. In yesterday’s post we noted that the rally from the October low only had three waves from an Elliott Wave perspective. That is the case on the daily chart, but it also seems obvious (at least to us) that this same rally is currently in a fifth wave on the hourly and half-hourly charts. And that is where it gets interesting.

S&P 500 Hourly

One of the basic rules of Elliott is that, within a five-wave structure, the third wave can never be shorter than both of the other impulse waves (waves 1 and 5). At today’s high on our hourly closing chart, the fifth wave was almost exactly the same length as the third wave that – in turn was shorter than the first wave. Similarly, the fifth wave on our half-hourly point and figure chart occupied as many boxes as the third wave (which occupied fewer boxes than the first wave).

As a result, a follow through tomorrow nicely into the 1097-1098 range would be enough to make the third wave from the October 2 low the shortest impulse wave. Thus, the rally of the past three days would be better counted as a third wave within a larger third wave – not a fifth wave. If so, the hourly charts would be in sync with the three waves in the daily chart.

With this in mind, we also note that the daily Coppock Curve has decisively reversed to the upside and has the potential to maintain this bullish bias for another 6-8 days. A similar time frame is indicated for a majority of the 24 industry groups. So it would seem that, in addition to the price pattern, the momentum configuration implies more time and higher recovery highs. The door is still open for a challenge of 1121-1156.

Nonetheless, we still are of the opinion that October’s rally is more of an ending than a beginning pattern (not unlike the period just prior to the June-July correction. The uptrend line from the March low is currently near 1036, but first chart support is now indicated at 1065-1058; second support remains at 1020-1015. A decline through 992-991 will lock in the July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.