Up, Close, and Personal

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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.