Getting (52-week) High

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Separately, I did an interview on Canada’s Business New Network (based on the Year Ahead piece). You can view the interview (and my boyish good looks) by clicking this link: http://watch.bnn.ca/trading-day/january-2010/trading-day-january-11-2010/#clip254197.

The S&P 500 rallied 0.2% on Monday. So far, the index has not had a down day in 2010. Breadth was positive by a 7:6 margin. The up/down volume ratio was positive by 9:5, but total volume fell for the second consecutive day. The daily Coppock Curve was positive for 14 of the 24 S&P industry groups.

On Monday, 280 NYSE common stocks made a new 52-week high, which compares very favorably with the 282 new highs recorded last October. Indeed, we would be hard-pressed to call this a divergence. Similarly, daily On-Balance Volume has moved to within a hair’s breadth of making a new 2009-2010 high. Both of these developments are evidence that the rally still has some life left in it. That “life” may well require a period of backing and filling – or an extended – correction – in order to lay the foundation for the divergences that may still be needed.

NYSE OBV

That said, it is possible to count five waves up from the March highs on both the 52-week and (especially) the OBV charts. This count is very much in line with our primary count for the S&P 500. So while the market may still need to do what it has to do to create the type of divergences that lead to a significant reversal a subsequent rally would seem to be quite likely.

Nonetheless, a five wave count from the March low suggests that a coming correction – with or without divergences – will have a Fibonacci relationship with the entire post-March uptrend. In turn, that means at least a 38.2 retracement, which translates to a minimum 15%-20% correction.

So, traders have to ask whether they expect a 15%-20% rally – or anything close to it – over the near to medium term. If not, then rallies should be increasingly used to become more defensive,

Our near term focus remains on nearby support at 1115-1114; A decline through that range would do much to lock in the rally from December 9 as a complete pattern, which would satisfy the minimum requirements for perhaps two larger wave degrees of trend. Until that happens, we will continue to give the current trend the benefit of the doubt. Second support remains at 1086-1085.

Meanwhile, the S&P has decisively pulled away from resistance at 1137. Thus, the potential is greater for a challenge of the top end of our long-standing 1121-1156 resistance range.