Positive Divergences, But …

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On Wednesday, the S&P 500 rallied 0.4%. Breadth was marginally positive, but the up/down volume ratio was marginally negative. Total volume decreased by 12%. The daily Coppock Curve still has a bearish bias for 20 of the 24 S&P industry groups.

For some time, we have discussed the importance of 1087-1084 as support. On Wednesday, the S&P tested that range yet again and – yet again – that range repelled the attempted sell-off. That resulted in a greater positive divergence in the hourly chart and an upside breakout by hourly momentum.

S&P 500 Hourly
However, the downtrend from December 4 high remains intact and the more important daily and weekly momentum oscillators have a bearish bias. Moreover, the uptrend line from the November low has been pierced on our point and figure chart and the downtrend from that early December high has an impulsive look to it. All of this implies that lower lows are likely, which means that near term strength is likely to be short lived. It also means that the 1087-1084 support range may be becoming increasingly fragile.

Since the 1087-1084 range has repelled another setback, we will continue to give the November-December uptrend the benefit of the doubt. Thus, until the 1087-1084 range is broken, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

Conversely, a breach of 1087-1084 would be an initial indication of potential further weakness toward the 1029-1020 area.