Near Term Improvement, But …

February’s monthly Insights was released to subscribers Tuesday evening. Readers interested in becoming a subscriber should send an e-mail to either walter@wminsights.com or customerservice@wminsights.com. We are also on Twitter as waltergmurphy.

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On Wednesday, the S&P 500 fell 0.6%. Breadth was negative by a 5:2 margin and down volume exceeded up volume by almost 3:1. However, total volume fell by almost 11% from Tuesday’s level.

S&P 500 with Daily Coppock Curve

The daily Coppock Curve still has a bearish bias for 19 of the 24 S&P industry groups, but these pressures may not last much longer. By our reckoning a solid majority of the groups could take on a bullish Coppock bias by as early as Thursday (tomorrow). As such, we would not be surprised if those new constructive underpinnings persisted for 2-3 weeks (which is pretty typical for a near term trend). However, the weekly oscillators are firmly entrenched in downtrends and appear able to withstand any near term strength. As such, the risk is that near term surprises will be to the downside.

That said, we are still in the camp that the decline from the January 19 high is impulsive on the hourly chart. So, while the daily chart does have a corrective hue to it, we are inclined to count the choppiness toward the end of the last week as an “irregular” bottom. In “Plain English” that simply means that the actual low last Friday is part of a corrective process that actually began a few days earlier. Subscribers will note that we used a similar formation in the recent monthly Insights when comparing the November 2008 low to the March 2009 bottom.

Despite this week’s rally, the “500” has barely managed to struggle to first resistance. In Monday’s post we noted that this countertrend rally should be a Fibonacci relationship to the just completed decline. A 38.2% retracement is in line with the fourth wave of prior degree, so 1102-1103 is a reasonably important first resistance area; the S&P rallied to 1105 before pulling back. Second resistance is in the 1111-1120 area. Obviously, a rally back through 1150 would send us back to our pencil and ruler.

We continue to believe that the decline from January’s high will be at least a 38.2% retracement of the July-January rally. This suggests further weakness to 1043, intervening rallies notwithstanding. Such a move could well put tactical support at 1029-1020 under pressure.