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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.
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