Last Gasp?

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The S&P rallied 1.4% on Monday. That broke a three day losing streak but fell just shy of a new recovery high. The breadth ratio was positive by a bit less than 11:2 and up/down volume was positive by a bit less than a 5:1 margin. Volume increased modestly from Friday’s level, but remained below four billion shares and below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

In our new Short Term Review, we noted that, as of Friday, fully half of the common stocks on the NYSE were at least 10% below their ytd high. Moreover, in recent comments we have had something of a countdown for a coming peak of the daily Coppock Curve. Since today appears to have been the peak for the Coppock and since there was little improvement in the number of stocks below their ytd high, it would seem that Monday’s surge was of little actual technical benefit. If that is not enough, it should be noted that the a-d lines for the S&P 500, 400, and 600 indexes are well below their recent highs, as is NYSE on-balance volume.

S&P 500 with NYSE On-Balance Volume
Thus, it would seem that the only thing the market has going for it is that the major averages are still in an uptrend. It would seem, therefore, that the most popular averages are not accurately representing the health of the market. Indeed, that is a point we made in the recent STR and suggests that recent strength is a last gasp rather than the beginning of a sustainable upleg. That said, the days prior to Thanksgiving are often positive; for example the first three days of Thanksgiving week have been up for six of the past seven years. So the market may be able to hang in there for another few days. But the downside risk – in terms of both price and time – is clearly outweighing the upside potential.

Nearby support is at 1087-1085 and the post-March trend line is at 1100. A violation of the 15 point range would likely open the door for a test of 1029-1020. We have said many times that a break of that lower level would confirm that the post-July rally was over.

As for resistance, the downtrend line from the 2007 high is currently just below 1105 on the weekly chart. A decisive breach of this line would clear the way for a stronger challenge of the 1121-1156 resistance range that we have regularly highlighted. That said, the momentum configuration implies that such a test might be short-lived.