That Didn’t Take Long

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The S&P 500 rallied 1.2% on Monday, just missing both a new intra-day recovery high and a new closing high. Breadth was positive by 11:2 and up volume outpaced down volume by a bit more than a 7:2 margin. Total volume was little changed from Monday’s level but edged above the 21-dma for the first time since November 4. The daily Coppock Curve still has a bearish bias for 22 of the 24 S&P industry groups.

Isn’t it interesting how Dubai is no longer a big story since the S&P has refused to wilt? Be that as it may, in yesterday’s post we indicated that a rally through 1102 would be a short term breakout, while a breach of 1087-1084 would violate both chart support and an important uptrend line. It did not take long for the S&P to make it intentions; in the first hour of trading, it rallied through 1102 and followed through to once again challenge November’s 1111-1114 recovery high. This rally does have an impulsive look to it and hourly momentum has confirmed the move so far, so we do have to allow for higher highs. Thus, the door is open for a more serious test of the 1121-1156 range that we have highlighted as a significant resistance area.

S&P 500 with Hourly and Daily Coppock Curves
However, the daily Coppock Curve is likely to remain weak for at least another week, which suggests that it will withstand any further upside pressures from the “pop.” Moreover, the overbought and deteriorating weekly oscillator is positioned to maintain its bearish bias into the New Year. Thus, from the perspective of the hourly, daily, and weekly trends, only the hourly can be said to have constructive momentum underpinnings. We would also note that, while the S&P came very, very close to a new recovery high, one-half of the common stocks in the NYSE are at least 10% below their own ytd high; the rally is increasingly narrow.

In addition to the suspect momentum background, the recent trading range can be counted as a triangle, which is how we labeled it yesterday’s post. In Elliott Wave, triangles are typically penultimate patterns, so the trading range could prove to be the “B” wave of an ABC rally from the November 2 low. If that count is correct, then today’s rally was the opening salvo in the final “C” wave. Once the ABC rally is complete, we will have to be on alert for a full retrace back to at least the November 2 low at 1029.

As for support, a breach of the recent 1087-1084 low would violate both chart support and an important uptrend line from the early November low. As such, the potential would exist for a deeper further weakness to 1081-1062 (a 38.2%-61.8% retracement of the overall pattern from the November 2 low. Nonetheless, our primary focus for support is still on 1029. A break of that level would confirm that the post-July rally is over.