It looks like tomorrow will be the day that our blog finally migrates to the “Comments” section of our website (www.wminsights.com). We have also decided to make the daily blog available only to subscribers, along with Insights and the Short Term Review. Hopefully, this will allow subscribers to avoid fire-wall issues that often interfere with directly accessing a typical blog site. Non-subscribers will be directed to a new Market Pulse blog page that will be updated once a week on our website. Those interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
Errata: in yesterday’s blog we mentioned that, of the 44 trading days so far this year, 47 have been winners based on the S&P. It should have been 27 winners. Apologies for the confusion.
On Tuesday, the S&P 500 managed an intra-day low below Monday’s low; this represented the first lower low since February 25. However, the index managed to finish with a gain of 0.2%. Breadth was positive by a modest 9:8 margin, but the up/down volume ratio was positive by a more robust 2:1 edge. Moreover, total volume increased by a hearty 37%. So it would seem that the day’s internals were more constructive than the S&P’s performance would suggest. The daily Coppock Curve is positive for 12 of the 24 S&P industry groups.
The index remains in the 1131-1150 resistance area created by January’s top formation. By extension, it also remains below the important Fibonacci resistance area that is evident from 1150 to 1159. A breakout would be viewed as a potentially bullish intermediate development and would likely necessitate that we raise tactical support from the current 1029 benchmark.
Nearby support can be found at 1126-1117, then 1112-1104.
S&P 500 with Combined VIX + 10-Year Yields
During the day on Tuesday, we noticed that if we added 10-year yields (using TNX) to the VIX index, the result was an indicator that we feel is a measure of valuation, sentiment, and volatility. It closed last week at a value of 21.10. This compares to the October 2007 reading of 21.55 and May 2008’s 20.32. (For comparison, the 11 year low was 14.50 in July 2005.) By contrast, the 11 year high was 82.82 in October 2008; the March 2009 high was 52.16.
Those are a lot of numbers to digest, but two things are obvious. First, at its current level, this indicator is at post-2007 overbought extremes. Second, within its longer 11-year history, the current reading is in the 90th percentile. While this measure of valuation, sentiment, and volatility will not prevent the current year-long uptrend from going still higher (especially if there is no divergence), it does suggest that the rally is skating on increasingly thin ice.
March’s monthly Insights has been released and is available to subscribers on our website, www.wminsights.com. We also hope to make our blog available to all readers in the Comments section of our website in the next day or two. (Insights and the Short Term Review will continue to be available only to subscribers.) Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
On Wednesday, the S&P 500 fell by only 0.02%, but that was enough to snap a six-day winning streak. Breadth, however, was modestly positive (by a 6:5 margin), as was the up/down volume ratio (by 7:5). Total volume fell by 10% to its lowest level of the year. The daily Coppock Curve is positive for 12 of the 24 S&P industry groups.
The six-day winning streak got us to thinking. Of the 44 trading days so far this year, 27 have been winners (based on the S&P 500). That equates to a winning percentage of 61.4%. For the period 1982- 2009, only one year had a higher percentage – 1995’s 61.9%. The average for all 28 years is 52.9% and the mean for the 21 up years is 54.9%.
S&P Day-to-Day Winning Percentage (1982-2010)
All of this suggests that there is a reasonably good chance that, in the months ahead, the S&P’s performance will be such that 2010’s winning percentage will revert closer to the mean in the low 50% range rather than the current low 60% figure. If so, this would be in line with our expectation – as outlined in January’s Year Ahead piece – that the second half of the year could be a difficult time.
Nearby support can be found at 1126-1117, then 1112-1104.
Resistance is indicated at 1150-1159.
March’s monthly insights has been released and is available to subscribers on our website, www.wminsights.com. We also hope to make our blog available to all readers in the Comments section of our website in the next day or two. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
Friday’s rally carried the S&P solidly into the 1131-1150 resistance area that we have focused on since the breakout above 1116. So the real question is, “What’s next?” There are several points that dominate our thinking.
First, we continue to respect the idea that, while November’s decline can be counted as a reversal of the rally from July’s low, it may have only been a correction within a larger post-July pattern. If so, then the January-February decline locked in the July-January rally as a complete pattern. Thus, the line of demarcation is January’s 1150.45 high; a rally through that benchmark will leave us no choice but to count February’s low as the equivalent of a fourth wave within the still unfolding post-March 2009 corrective pattern. (July’s low was wave 2.) Moreover, a rally through 1150 will also raise tactical support to 1044, from 1029.
Second, while Friday was a solid day in most respects, it was also a low volume day – again. Total volume did increase modestly (4%) from Thursday’s level, but it remains solidly below its 21-day ma. In fact, the 21-day moving average has been declining throughout the entire rally from the March 2009 low. This is in contrast to the 2007-2009 downtrend, when volume consistently increased throughout the bear market.
S&P 500 with NYSE Composite Volume (21-day ma)
Third, absent a solid week this week, we expect that near term momentum will turn down in harmony with a still weak medium term oscillator.
Fourth, the backing and filling in the middle of last week looks very much like a triangle. Conventional triangles are continuation patterns and are also penultimate structures. This combination suggests that Friday’s rally is the final surge from the February 25 low. Combined with the momentum configuration, It would appear that the S&P will soon be in need of a rest.
Fifth, the dominant February-March uptrend line is currently near 1108 and rising by more that three points per day. (The trend line connecting the July and February lows is near 1068.)
Finally, the overall structure remains corrective. Virtually every correction over the past 12 months has overlapped the correction that preceded it. Overlaps are classic signs of a corrective pattern.
All that said, we need to expand the top end of the resistance zone to 1159, from 1150. The 1150 level represents the January high, so that is an obvious resistance point. However, the rally from the July low will equal the prior March-June rally at 1158. Moreover, the rally from the February 25 low will equal the February 5-22 uptrend at 1154. Finally, on the hourly closing chart, the thrust out of the March 2-4 triangle equal the February 25-March 2 rally into the triangle at 1155. So it seems pretty clear that a rally through 1159 will be a bullish development.
This month’s Insights has been posted to the website for subscribers. Below is our “Plain English” summary as well as one of the charts from the report:
Stocks: It is highly unlikely that the rally since last March is a new bull market. It may qualify as a bull market by conventional (myopic) standards, but it is structurally a bear market rally.
The Rest of the World: In the months ahead, global markets face the potential for a broad-based correction. In that environment, the S&P 500 is apt to demonstrate relative strength.
10-Year Yields: Yields have been contending with nearby support in the 3.58%-3.54% range. That range represents both a January-February double-bottom and a 50% retracement of the November-December rally. It also represents what has become a test of December’s breakout point. So, this range has become important in its own right. A breach would open the door for a test of the November low. Until that breach occurs, yields could still try to test resistance.
US Dollar: The weekly Coppock Curve has a bearish bias for the dollar versus three of the six currencies in the index and a bullish bias versus the other three (including the euro). However, five of the six are more overbought than not and we expect to see a majority bearish condition to become evident over the course of the next two weeks.
Commodities: Gold is in a multi-year uptrend that has arguably satisfied the minimum requirements for a complete pattern from an Elliott Wave perspective. However, both sentiment and intermediate momentum are positioned to take on a bullish bias in coming weeks. This suggests that gold is nominally positioned for a spring/summer rally (or trading range) prior to what could be a difficult second half. Meanwhile, sentiment for the energy complex in general and oil in particular is more overbought (excessively optimistic) than not. Moreover, sentiment (which is a trend following indicator) did not confirm January’s high. So, as is the case with momentum, there is a divergence. Thus, it is not a stretch to suggest that the “B” wave rally has seen its internal peak.
Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Wednesday, the S&P 500 rallied by less than 0.1% but that was still enough to post its its fourth straight gain. Breadth was positive by 5:4 and up volume was better than down volume by a 4:3 margin. Total volume fell by 7% and remains below its 21-day ma. The daily Coppock Curve is positive for 20 of the 24 S&P industry groups.
The bottom line is that Wednesday was essentially a non event. As a result, we are watching both the momentum background, which is beginning to deteriorate, and the uptrend line from the February 5 low, which is crossing through the 1102 area. A confirmed reversal in momentum, coupled with a breach of the trend line, would do much to confirm that a short term top is in place and that the intermediate pressures are reasserting themselves. The implications would be for at least a test of 1044.
Nearby support is at 1112-1105 then 1086 and the 1078-1075 breakout point. We still regard 1029-1020 as tactical support but, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
As for resistance, our focus is on the 1131-1150 range.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Tuesday, the S&P 500 posted its third straight gain with a rally of 0.2%. Breadth was positive by 7:3 and up volume was better than down volume by an 8:5 margin. Total volume finally increased (by 9%) on an up day, but remains below its 21-day ma.
The daily Coppock Curve is positive for 23 of the 24 S&P industry groups. While that is a large majority, it broke a string of four straight days (and six out of seven) where the oscillator had a bullish bias for all 24 groups. It seems likely that, failing a very strong day, Wednesday will see more noticeable group deterioration. Indeed, by the end of the week, the Coppock Curve could well have a bearish bias for a majority of the groups.
S&P with Daily and Weekly Coppock Curves
We have been making the case that medium term momentum (i.e., the weekly Coppock Curve), which has been deteriorating, would likely withstand the bullish pressures being exerted by the short term rally from the early February low. With a short term momentum peak seemingly virtually at hand, it appears that the weekly oscillator has, in fact, maintained its bearish bias. Indeed, it is positioned to remain weak for another 5-8 weeks. So it does appear that the weeks immediately ahead could prove to be weaker – perhaps much weaker – than the past few weeks.
In a similar vein, it is worth noting that this is the 17th week since the last 20-week cycle low in November. Since the February low was only 13 weeks into this new cycle, it is unlikely that it was a 20-week cycle low. If it was, it would be the shortest cycle since the peak in 2000. Since late 2004, early 2005 this cycle has averaged 20 weeks, and the normal “window” for a low has been on the order of 17-24 weeks. Since the last four cycles have been below average in duration, it would seem that we are overdue for an above-average – or at least an average – cycle. Thus, a cycle low may not occur for another 3-7 weeks. That puts the cycle environment in reasonable harmony with the perceived momentum background. Together they suggest that we continue to be alert for a test of the February low.
Tuesday’s rally confirmed Monday’s breakout through 110-1116. This suggests that, in the time left to it, the rally still has the potential to challenge the 1131-1150 range.
Nearby support is at 1112-1105 then 1086 and the 1078-1075 breakout point. We still regard 1029-1020 as tactical support but, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Monday, the S&P 500 rallied 1.0%. Breadth was positive by almost 11:2 and the up volume was better than down volume by almost 4:1. However, total volume fell 9% to its second lowest level of the year. It is interesting to note that, of the 39 trading days year to date, 23 have posted a gain, but 13 of those have occurred on lower volume. That low volume pace has increased of late – five of the past seven up days were on lower day-to-day volume.
Meanwhile the daily Coppock Curve still has a bullish bias for all 24 S&P 500 industry groups. That said, it still appears to be on track to peak in the early days of March (i.e., this week). Obviously, we will watch that closely in coming day since a coming peak will put the daily oscillator in harmony with the still deteriorating weekly indicator.
In recent posts we have pointed to 1110-1116 as an important resistance area, reflecting the fact that it represents three different Fibonacci and chart relationships. The S&P is now at the top end of that range and, since the rising Coppock may still have a few more days of life left in it, we have to respect the potential for a penetration of that range. If that occurs, it would be at least a short term plus and imply further strength toward 1131-1150.
Even so, Monday’s high was enough to lock in the January-February decline as a complete pattern. On the surface, that decline has a three-wave (counter trend) structure. This, plus the fact that the decline was a 38.2% retracement of the preceding rally from July’s low, leaves open the possibility that this decline is simply a normal pullback within the larger post-March uptrend. However, while the January-February downtrend has been reversed, its three-wave structure has not been locked in; that will require a rally through the January high. Until that happens, it is still possible to count the rally from the February low as a counter trend move within a larger, still unfinished decline from the January high. Thus, until the January high is breached, we will remain alert for at least a test of the February low. We still think that the S&P is positioned to at least test, if not violate, its recent low near 1045. Below Thursday’s low at 1086, next support is indicated at the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. We still regard 1029-1020 as tactical support. However, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
All that said, even if the S&P rallies through its January high, there is the very real possibility that new highs will be met with more and greater divergences than those that already exist. As an example, the Bullish Percentage Index (BPI) peaked in September but recorded a lower high in January. Thus, a case can be made that the market’s internal peak occurred in September. As a result, higher highs by the S&P, accompanied by lower highs in the BPI, are arguably part of an important topping process. This in not unlike the bottoming process that occurred between October 2008 and March 2009. Both the S&P and the BPI made bear market lows in October 2008; the S&P continued to make lower lows in November 2008 and March 2009 while the BPI recorded successive higher highs. The rest, as they say, is history.
This together, together with the momentum configuration, suggests that the 12-month uptrend has moved into its very late stages.
We are moving! Hopefully by the end of next week our blog will be available to all readers in the Comments section of our website, www.wminsights.com. Insights and the Short Term Review will continue to be available only to subscribers. Further details will be posted when they become more certain. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
It could have been worse. On Thursday, the S&P 500 finished the day with a loss of 0.2% after having been down as much as 1.7%. Despite a solid afternoon recovery, both breadth and the up/down volume ratio were negative by a 9:8 margin. Total volume expanded by 9% from Wednesday’s total, effectively continuing its recent tendency to increase on down days and decrease on up days. The daily Coppock Curve still has a bullish bias for all 24 S&P industry groups.
Thursday’s action presents us with a bit of a conundrum. The early sell-off violated the support trend line of the channel we showed in yesterday’s post. The afternoon rally then tested, but did not penetrate, that same trend line. As a result, a case can be made that the trend line is now a resistance line. That combination can be considered a negative (i.e., a breakdown then a test of the breakdown point).
However, an hourly low (post-February 9) was accompanied by a decent positive RSI divergence. Moreover, both the hourly and daily Coppock Curves currently have a bullish bias and the 10-day CBOE put/call ratio is more oversold than not. All of this is viewed as a net positive.
While we remain of the opinion that the S&P will at least test, if not penetrate, the early February low (at 1044) before a new intermediate rally takes hold, our sense is that Thursday afternoon’s rally will follow through and try to test the 1110-1116 range yet again. Thus, while the uptrend from the February 5 low is bending, it has not yet been broken.
But, even if 1110-1116 is tested, it will likely be a last gasp. We have made the case that the daily Coppock oscillator would remain positive into the early days of March and March begins next week. Since a near term peak is likely to have negative medium term implications, we have to be alert to the idea that a coming peak – which is probably only days away – will lead to a decline that should last several weeks. So, from an intermediate perspective, the downside risk likely outweighs the upside potential in terms of both price and time.
The aforementioned 1110-1116 resistance range encompasses a 61.8% retracement of the January-February decline, the point at which the “C” wave of the current rally is 1.618 times the “A” wave, and chart resistance generated by the late December low. Clearly, a breach of that range would be at least a short term plus and imply further strength toward 1131-1150.
In the weeks ahead, we still think that the S&P is positioned to at least test, if not violate, its recent low near 1045. Below Thursday’s low at 1086, next support is indicated at the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. Our longer term focus, of course, is on tactical support at 1029-1020.
We are moving! Hopefully by the end of next week – perhaps sooner – our blog will be available to all readers in the Comments section of our website, www.wminsights.com. Insights and the Short Term Review will continue to be available only to subscribers. Further details will be posted when they become more certain. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Wednesday, the S&P 500 recovered from Tuesday’s “tail wagging the dog” sell-off with a gain of 1.0%. Breadth was positive by 11:4 and the up/down volume ratio was positive by better than 3:1. Despite the rally, total volume dropped by 8% from Tuesday’s total. The daily Coppock Curve has a bullish bias for all 24 S&P industry groups.
In the early days of February, we were looking for a short term momentum low and suggested that, when momentum did bottom, the resulting bullish bias could persist for 2-3 weeks. As it happened, the daily Coppock oscillator bottomed 11 days ago and currently appears positioned to remain bullish for another 4-8 days. So it would seem that near term momentum still has some life left in it, but has not been overly powerful.
At the same time, intermediate momentum has been – and still is – positioned to be under pressure into late March/early April. As a result, our ongoing expectation that intermediate pressures will withstand a near term rally still seems valid.
While the rally from the February 5 low may still have some life left in it, the overall pattern has been corrective. For that matter, so does the bounce from Tuesday’s low. This, together with the momentum configuration, suggests that the rally since February 5 will prove to be a counter trend move within a larger decline from January’s high.
With that in mind, the S&P has already challenged – and is struggling with – the 1110-1116 resistance range, which encompasses a 61.8% retracement of the January-February decline, the point at which the “C” wave of the current rally is 1.618 times the “A” wave, and chart resistance generated by the late December low. Clearly, a breach of that range would be at least a short term plus and imply further strength toward 1131-1150.
In the weeks ahead, we still think that the S&P is positioned to at least test, if not violate, its recent low near 1045. However, there is no significant intervening support until the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. Our longer term focus, of course, is on tactical support at 1029-1020.
We are moving! By the end of next week – hopefully sooner – our blog will be available to all readers in the Comments section of our website, www.wminsights.com. Insights and the Short Term Review will continue to be available only to subscribers. Further details will be posted when they become more certain. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Tuesday, the S&P 500 had its largest decline in almost three weeks with a loss of 1.2%. Breadth was negative by almost 11:2 and the up/down volume ratio was negative by a 6:1 margin. Total volume expanded by 17% from Monday’s total. The daily Coppock Curve still has a bullish bias for 23 of the 24 S&P industry groups.
![clip_image002[8]](http://lh5.ggpht.com/_C23F85G8bEw/S4SEXBlcd4I/AAAAAAAAAY4/GswO-uClvl0/s1600-h/clip_image002%5B8%5D%5B4%5D.jpg "clip_image002[8]")
One of the more common reasons for Tuesday’s rout was a sharp decline in the Conference Board’s index of Consumer Confidence. That reasoning may be a case of the tail wagging the dog. The stock market is a leading economic indicator; consumer confidence is not (though consumer expectations are). So, it is worth noting the nearby chart, which highlights the very close correlation between the S&P 500 and the Consumer Confidence index since the secular stock market peak in 2000. (This close relationship is actually apparent for many years before 2000.) So a case can be made that consumer confidence has been deteriorating because stock prices have begun to deteriorate, not the other way around.
That said, an examination of the Consumer Confidence index’s chart suggests that it just experienced a “bull trap,” which occurs when prices break above important resistance and generate a buy signal, but then reverse course and invalidate the buy signal (for this and other definitions, see the glossary in our website). Thus, from the perspective of technical analysis, the Consumer Confidence index is positioned to work its way lower in the months ahead.
As for the S&P 500, we have already made the case in our Year Ahead piece that the second half of 2010 could see the most important decline since the 2007-2009 sell-off; that, too, might not bode well for consumer confidence.
In the weeks ahead, we still think that the S&P is positioned to at least test, if not violate, its recent low near 1045. The Elliott Wave does not appear to be complete, sentiment is no better than neutral, and medium term momentum is positioned to maintain its current bearish bias for another 7-10 weeks.
There is no significant intervening support until the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. Our longer term focus, of course, is on tactical support at 1029-1020.
Last week’s high challenged the 1110-1116 resistance range, which encompasses a 50% retracement of the January-February decline, the point at which the “C” wave of the current rally is 1.618 times the “A” wave, and chart resistance generated by the late December low. A rally through that range would open the door for further strength toward 1131-1150.
Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Monday, the S&P 500 broke a four-day winning streak with a loss of 0.1%. Breadth was modestly negative, but the up/down volume ratio was modestly positive. However, total volume continued its recent malaise and fell to its lowest level of the year. The daily Coppock Curve has a bullish bias for all 24 S&P industry groups.
Meanwhile, the long bond posted its second inside day in a row (with a lower high and a higher low than the previous session). This may be a sign of fatigue. The nearby contract has been in a near term downtrend for much of February and in recent days began testing the late December, early January short term base. While further – and deeper – testing is possible, we would note that the daily Coppock Curve is positioned to bottom by very early March while the weekly oscillator may have bottomed within the past week. Thus, we will be alert to the idea that a near term low in the days immediately ahead will be fuel for an intermediate rally.
![clip_image002[4]](http://lh5.ggpht.com/_C23F85G8bEw/S4NCTaPI45I/AAAAAAAAAYw/t_DNXtuSSgI/s1600-h/clip_image002%5B4%5D%5B6%5D.jpg "clip_image002[4]")
With that in mind, we would remind readers that we have regularly made the case that, while we can (and do) count a five wave rally for 10-year yields between December 2008 and August 2009, it is much more difficult to count a similar five wave decline for long bond prices over that same period. A much more “obvious” count is that long bond prices fell in three waves from December 2008 to June 2009, and then rallied on three waves into October 2009. The overall downtrend since then also has a corrective look to it. All of this suggests that a larger structure is incomplete and that a coming rally will also be an inherently corrective pattern.
From a non-Elliott perspective readers may also remember that we have previously shown a possible head-and-shoulder top in the long bond (and a pending head-and shoulders bottom in 10-year yields), which has been unfolding since at least June 2008. If a coming rally proves to be corrective, it will likely be part of the right shoulder, which still appears to be in progress.
That said, key support is in the 113-112 area (with some intervening support near 114:08). A breach of that level would effectively break the multi-year “neckline” and argue for significantly lower level.
Equally important resistance is in the 117:16-123:24 area, though most of the resistance is in the narrower 117:18-121:13 range. That represents the top end of the right shoulder, so a break of that range would weaken the pending H&S pattern.
Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Thursday, the S&P 500 posted its third straight gain with a rally of 0.7%. Breadth was positive by a 7:3 ratio while up volume was greater than down volume by a bit more than 2:1. However, total volume fell by 9% to its lowest level of the month. The daily Coppock Curve has a bullish bias for 23 of the 24 S&P industry groups.
The biggest news on Thursday was the S&P’s rally through resistance at 1104-1105. We have been putting some emphasis on that range for a while and, with this breach, the decline from January’s high takes on a distinct corrective (counter trend) look.
We are aware that there are those who count the entire decline from the January high to the February low as a full five-wave sequence. We don’t agree. In our view, the decline from the highs into late January was one pattern, the rally into February 2 was a second pattern, and the subsequent decline into February 5 was the third and final structure. Now that the February 2 high has been violated, a clean three-wave pattern is fairly obvious.
That said, we are not ready to throw the baby out with the bathwater. We still think that intermediate momentum will withstand this near term strength. Moreover, the February 5 low was too early by historical standards to be a 22-week cycle low. Also, the hourly chart shows negative momentum divergences that could be the precursor to divergences on the daily chart in the days ahead. Thus, the risk remains for a move back to or through February’s 1044 low once the current rally runs its course.
Nonetheless, the rally through 1104-1105 (together with still constructive momentum) turns our immediate focus on 1110-1116. That range encompasses a 50% retracement of the January-February decline, the point at which the “C” wave of the current rally is 1.618 times the “A” wave, and chart resistance generated by the late December low. A rally through that range would open the door for further strength toward 1131-1150.
On the downside, there is no significant support until the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. Our longer term focus, of course, is on tactical support at 1029-1020.
Our Short Term Review has been released and is available to subscribers on the website. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Wednesday, the S&P 500 gained 0.4%. Breadth was positive by less than a 2:1 ratio while up volume outpaced down volume by a bit more than 2:1. Total volume was marginally better than Tuesday’s turnover, but remains well below its declining 21-day ma. The daily Coppock Curve has a bullish bias for 23 of the 24 S&P industry groups.
In recent posts we have regularly made the case that 1104-1105 is an important resistance area for the S&P 500. This is because a rally through that resistance will do much to define the decline from January’s high as a corrective pattern.
Moreover, the rally from the February 5 low (which is corrective in its own right) has important internal resistance just above 1100. So, with Wednesday’s high at 1100, the rally is now up, close, and personal with a significant resistance area.
With that in mind, near term momentum is still constructive. Readers may recall that, in an early February post, we suggested that near term momentum was on the verge of bottoming and that a new bullish bias could last for 2-3 weeks. That still seems to be a reasonable scenario. A majority of the 24 S&P groups took on a bullish bias on February 9 and this majority condition is likely to persist into the early days of March.
That said, we continue to believe that the deteriorating medium term indicators will be able to withstand the constructive near term pressures. So, higher rally highs are at risk of creating more negative divergences. Moreover, an early March near term peak will likely have negative medium term implications.
We still believe that the trading range from Monday’s high into Thursday’s high was a “B” wave triangle. If so, this clearly defines the overall rally from last Friday’s low an ABC pattern. As such, the current “C” wave will be 1.618 times the “A” near 1100. As mentioned, key resistance is at 1104-1105.
On the downside, our main focus is on tactical support at 1029-1020. However, the aforementioned “B” wave triangle is important interim support. In that regard, a breach of 1057 would be viewed as a breakdown and do much to indicate the demise of the current rally.
