Keeps on Ticking

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On Thursday the S&P 500 rallied 1.1%. Both breadth and the up/down volume ratio were positive by a bit less than a 3:1 margin. Total volume fell by 7%. Most readers probably remember the Timex Watch slogan “Takes a Licking and Keeps on Ticking.” The market is still ticking (barely). On Tuesday and Wednesday the indexes were hit fairly hard. On both days there were more than 1300 declining issues on the NYSE and, on Wednesday, the S&P followed a new recovery high with a five-day low. Then on Thursday, both the DJIA and S&P opened on the weak side, but then recovered a good chuck of the losses of the two previous days. Indeed, the DJIA recovered almost all of those losses.

DJIA 30-Minute HLC
In recent comments, we have used phrases like “skating on thin ice” and running out of time.” Despite Thursday’s recovery, we still respect the idea that the rally from the October 2 low is fragile. In turn, that puts the larger uptrend from the July (and perhaps the March) low under pressure. To put that into perspective, the daily Coppock Curve is likely to be in full retreat within the next two days and the weekly Coppock probably peaked last week. This increased bearish bias is taking place in an overbought sentiment background and what appears to be a fatigued 22-week cycle (which is finishing its 15th week.

Despite the weakness of the past two days, which resulted in a second degree lower low for the first time since the rally from the October 2 low began, we are not quite ready to give up on the idea of higher highs. As mentioned yesterday, this rally is skating on thin ice. Both near and medium term momentum indicators are under pressure, sentiment is showing excessively bullish readings, and the 22-week cycle is peaking. Other than that, everything looks fine!

From an Elliott Wave perspective, the October rally has a corrective number of waves. Moreover, 1075-1066 is increasingly important. We have suggested that a break of 1067-1066 would be enough to lock in the entire post-July rally as a complete corrective rally pattern. We will likely soon raise that key benchmark to 1075-1074. Such a development, combined with the momentum, sentiment and cycle pressures mentioned above would not bode well for the market. A decline through 992-991 will lock in the larger July-September rally as a complete Elliott Wave pattern. The July low (869) continues to be tactical support.

The post-March uptrend is still intact (the uptrend line is just above 1050). The recent highs at 1097-1101 is now first resistance. Although the door is still open for a challenge of 1121-1156, it appears to be closing.