Thin Ice

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The S&P fell 0.1% on Wednesday, barely avoiding a second consecutive inside day. Breadth was negative by a 5:3 margin, but up/down was positive by a 4:3 ratio. Volume increased by 11% above Tuesday’s low level and remains below its 21-dma. The daily Coppock Curve remains constructive for all 24 S&P industry groups.

Given the second narrow day in a row, there is not much to add to recent comments. The rally from the November low is more corrective than not, which suggests that it is an ending pattern. The risk is that it is an ending pattern relative to the entire post-July rally. As a result, a breach of the uptrend from the early November low would be an early warning sign prior to a potentially important decline.

In addition to these price considerations, the daily Coppock Curve is positioned to maintain its bullish bias for another 4-5 days, even as the weekly Coppock currently seems likely to be under pressure through the rest of this year. This combination implies that a coming short term peak might also have negative intermediate implications.

Daily and Weekly Coppock Curves
Finally, sentiment is overbought. Our index was recently at levels that matched the 2007 high and has not backed off all that much. So, it would seem that price, momentum, and sentiment all suggest that the rally is skating on thin ice.

Last week’s test (at 1085) of the post-March uptrend line is first support. A break of that level would be further evidence that the rally from the November 2 low is corrective and would increase the risks for a test of the important 1029-1020 double-bottom.

As for resistance, the downtrend line from the 2007 high is currently at 1109.10 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.