SPX and DXY

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On Thursday, the S&P 500 fell 1.2%. Breadth was negaitive by a bit less that 9:2 and the up/down volume ratio was positive by a bit more than 9:1. Total volume increased by almost 50% to its highest level since August. The daily Coppock Curve has a bearish bias for 14 of the 24 S&P industry groups.

Thursday was a bad day, especially if one looks at the volume figures. However, the volume figures are skewed by Citicorp’s 3.8 billion share secondary offering, which represents almost half of total volume. Absent that, volume likely would still have been in excess of five billion shares, which is on a par with the level of recent days. Even so, breadth was poor, as was momentum.

Nonetheless, the S&P managed to hold the nearby 1097-1094 support level mentioned in Thursday morning’s post. If that level continues to hold, this pullback may prove to be nothing more than a short term reaction. That said, our primary focus remains on the 1087-1084 area (which is also trend support on the hourly P&F chart). That range has repelled prior pullbacks on four occasions over the past four weeks and, as a result, a decisive breach of that range would be an important change in behavior.

Since 1087-1084 is still intact. the post-November uptrend continues to receive the benefit of the doubt. Moreover, the backing and filling of recent weeks may be an Elliott Wave triangle or some other continuation pattern. Thus, the door is still open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

US Dollar Index

On another note, the dollar index has rallied through the 76.82 resistance area mentioned in recent comments. Thus, the minimum requirements for a complete pattern from last March’s low have been satisfied. In turn, this suggests that an ABC correction that began in November 2008 may have also been satisfied. This, plus the fact that the “C” wave of that ABC appears to have also been a diagonal triangle, our expectation is for at least a full retrace to the 88-89 area. If this is correct – and if recent relationships continue to hold sway – this would imply an important commodity correction.