Dominoes

Our Year Ahead has been sent to our subscribers. Anyone interested in either becoming a subscriber or separately purchasing the Year Ahead issue should send an e-mail to either wmgallc@gmail.com or customerservice@wminsights.com.

On Wednesday, the S&P 500 gained a bit more than 0.05%. But that was enough for the index to post its third straight gain of the new year, aided by modestly positive breadth and an up/down volume ratio of 9:4. Total volume was essentially unchanged (down 3%). The daily Coppock Curve still has a bullish bias for 15 of the 24 S&P industry groups.

From a short term Elliott Wave perspective, we can make the case that the rally from the December 31 low at 1114-1115 is the fifth wave of a larger degree uptrend that began on December 9. That could be important because this five wave rally from December 9 followed a November-December trading range that we have described as a triangle or some other continuation pattern. If, in fact, that trading range was a triangle, then the rally from December 9 would have to be counted as the final “C” wave of a rally that began on November 2. In turn, the rally from November 2 can be counted as the final “E” (or fifth) wave from the March low.

S&P 500

So, in a sense, there is an Elliott game of dominoes at play. A decline below 1115-1114 would do much to lock in the rally from December 9 as a complete pattern, which in turn would satisfy the minimum requirements for perhaps two larger wave degrees of trend.

Much of this is predicated on the idea that the aforementioned trading range really was a triangle. In Elliott, a conventional triangle is a penultimate pattern within a larger trend. So, by definition, the post-triangle thrust from the December 9 low is the final leg of that larger trend. In the end, it will take a breach of the December low (1086-1085) to truly set the dominoes in motion.

Meanwhile, the S&P is struggling with resistance at 1137. We have pointed to 1137 as a resistance area within the larger 1127-1156 band that we have been highlighting for some time. Thus, a rally through 1137 would nominally open the door for a challenge of 1156. But if momentum is positioned to fatigue in coming days, a move to 1156 might be a difficult chore. As a result, we will watch to see if 1137 or slightly above proves to be an important barrier.

We will continue to give the post-November uptrend the benefit of the doubt until it gives us a sign that a potential reversal may be imminent. Nearby support is at 1115-1114, but it will take a break of 1086-1085 to end the post-July series of higher lows and higher lows.

As a follow-up to yesterday’s post, a three-day winning streak to launch a new year has happened 15 times in the previous 81 years. A four day New Year winning streak has occurred only eight times.