It looks like tomorrow will be the day that our blog finally migrates to the “Comments” section of our website (www.wminsights.com). We have also decided to make the daily blog available only to subscribers, along with Insights and the Short Term Review. Hopefully, this will allow subscribers to avoid fire-wall issues that often interfere with directly accessing a typical blog site. Non-subscribers will be directed to a new Market Pulse blog page that will be updated once a week on our website. Those interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
Errata: in yesterday’s blog we mentioned that, of the 44 trading days so far this year, 47 have been winners based on the S&P. It should have been 27 winners. Apologies for the confusion.
On Tuesday, the S&P 500 managed an intra-day low below Monday’s low; this represented the first lower low since February 25. However, the index managed to finish with a gain of 0.2%. Breadth was positive by a modest 9:8 margin, but the up/down volume ratio was positive by a more robust 2:1 edge. Moreover, total volume increased by a hearty 37%. So it would seem that the day’s internals were more constructive than the S&P’s performance would suggest. The daily Coppock Curve is positive for 12 of the 24 S&P industry groups.
The index remains in the 1131-1150 resistance area created by January’s top formation. By extension, it also remains below the important Fibonacci resistance area that is evident from 1150 to 1159. A breakout would be viewed as a potentially bullish intermediate development and would likely necessitate that we raise tactical support from the current 1029 benchmark.
Nearby support can be found at 1126-1117, then 1112-1104.
S&P 500 with Combined VIX + 10-Year Yields
During the day on Tuesday, we noticed that if we added 10-year yields (using TNX) to the VIX index, the result was an indicator that we feel is a measure of valuation, sentiment, and volatility. It closed last week at a value of 21.10. This compares to the October 2007 reading of 21.55 and May 2008’s 20.32. (For comparison, the 11 year low was 14.50 in July 2005.) By contrast, the 11 year high was 82.82 in October 2008; the March 2009 high was 52.16.
Those are a lot of numbers to digest, but two things are obvious. First, at its current level, this indicator is at post-2007 overbought extremes. Second, within its longer 11-year history, the current reading is in the 90th percentile. While this measure of valuation, sentiment, and volatility will not prevent the current year-long uptrend from going still higher (especially if there is no divergence), it does suggest that the rally is skating on increasingly thin ice.
March’s monthly Insights has been released and is available to subscribers on our website, www.wminsights.com. We also hope to make our blog available to all readers in the Comments section of our website in the next day or two. (Insights and the Short Term Review will continue to be available only to subscribers.) Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
On Wednesday, the S&P 500 fell by only 0.02%, but that was enough to snap a six-day winning streak. Breadth, however, was modestly positive (by a 6:5 margin), as was the up/down volume ratio (by 7:5). Total volume fell by 10% to its lowest level of the year. The daily Coppock Curve is positive for 12 of the 24 S&P industry groups.
The six-day winning streak got us to thinking. Of the 44 trading days so far this year, 27 have been winners (based on the S&P 500). That equates to a winning percentage of 61.4%. For the period 1982- 2009, only one year had a higher percentage – 1995’s 61.9%. The average for all 28 years is 52.9% and the mean for the 21 up years is 54.9%.
S&P Day-to-Day Winning Percentage (1982-2010)
All of this suggests that there is a reasonably good chance that, in the months ahead, the S&P’s performance will be such that 2010’s winning percentage will revert closer to the mean in the low 50% range rather than the current low 60% figure. If so, this would be in line with our expectation – as outlined in January’s Year Ahead piece – that the second half of the year could be a difficult time.
Nearby support can be found at 1126-1117, then 1112-1104.
Resistance is indicated at 1150-1159.
March’s monthly insights has been released and is available to subscribers on our website, www.wminsights.com. We also hope to make our blog available to all readers in the Comments section of our website in the next day or two. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter at http://twitter.com/waltergmurphy.
Friday’s rally carried the S&P solidly into the 1131-1150 resistance area that we have focused on since the breakout above 1116. So the real question is, “What’s next?” There are several points that dominate our thinking.
First, we continue to respect the idea that, while November’s decline can be counted as a reversal of the rally from July’s low, it may have only been a correction within a larger post-July pattern. If so, then the January-February decline locked in the July-January rally as a complete pattern. Thus, the line of demarcation is January’s 1150.45 high; a rally through that benchmark will leave us no choice but to count February’s low as the equivalent of a fourth wave within the still unfolding post-March 2009 corrective pattern. (July’s low was wave 2.) Moreover, a rally through 1150 will also raise tactical support to 1044, from 1029.
Second, while Friday was a solid day in most respects, it was also a low volume day – again. Total volume did increase modestly (4%) from Thursday’s level, but it remains solidly below its 21-day ma. In fact, the 21-day moving average has been declining throughout the entire rally from the March 2009 low. This is in contrast to the 2007-2009 downtrend, when volume consistently increased throughout the bear market.
S&P 500 with NYSE Composite Volume (21-day ma)
Third, absent a solid week this week, we expect that near term momentum will turn down in harmony with a still weak medium term oscillator.
Fourth, the backing and filling in the middle of last week looks very much like a triangle. Conventional triangles are continuation patterns and are also penultimate structures. This combination suggests that Friday’s rally is the final surge from the February 25 low. Combined with the momentum configuration, It would appear that the S&P will soon be in need of a rest.
Fifth, the dominant February-March uptrend line is currently near 1108 and rising by more that three points per day. (The trend line connecting the July and February lows is near 1068.)
Finally, the overall structure remains corrective. Virtually every correction over the past 12 months has overlapped the correction that preceded it. Overlaps are classic signs of a corrective pattern.
All that said, we need to expand the top end of the resistance zone to 1159, from 1150. The 1150 level represents the January high, so that is an obvious resistance point. However, the rally from the July low will equal the prior March-June rally at 1158. Moreover, the rally from the February 25 low will equal the February 5-22 uptrend at 1154. Finally, on the hourly closing chart, the thrust out of the March 2-4 triangle equal the February 25-March 2 rally into the triangle at 1155. So it seems pretty clear that a rally through 1159 will be a bullish development.
This month’s Insights has been posted to the website for subscribers. Below is our “Plain English” summary as well as one of the charts from the report:
Stocks: It is highly unlikely that the rally since last March is a new bull market. It may qualify as a bull market by conventional (myopic) standards, but it is structurally a bear market rally.
The Rest of the World: In the months ahead, global markets face the potential for a broad-based correction. In that environment, the S&P 500 is apt to demonstrate relative strength.
10-Year Yields: Yields have been contending with nearby support in the 3.58%-3.54% range. That range represents both a January-February double-bottom and a 50% retracement of the November-December rally. It also represents what has become a test of December’s breakout point. So, this range has become important in its own right. A breach would open the door for a test of the November low. Until that breach occurs, yields could still try to test resistance.
US Dollar: The weekly Coppock Curve has a bearish bias for the dollar versus three of the six currencies in the index and a bullish bias versus the other three (including the euro). However, five of the six are more overbought than not and we expect to see a majority bearish condition to become evident over the course of the next two weeks.
Commodities: Gold is in a multi-year uptrend that has arguably satisfied the minimum requirements for a complete pattern from an Elliott Wave perspective. However, both sentiment and intermediate momentum are positioned to take on a bullish bias in coming weeks. This suggests that gold is nominally positioned for a spring/summer rally (or trading range) prior to what could be a difficult second half. Meanwhile, sentiment for the energy complex in general and oil in particular is more overbought (excessively optimistic) than not. Moreover, sentiment (which is a trend following indicator) did not confirm January’s high. So, as is the case with momentum, there is a divergence. Thus, it is not a stretch to suggest that the “B” wave rally has seen its internal peak.
Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Wednesday, the S&P 500 rallied by less than 0.1% but that was still enough to post its its fourth straight gain. Breadth was positive by 5:4 and up volume was better than down volume by a 4:3 margin. Total volume fell by 7% and remains below its 21-day ma. The daily Coppock Curve is positive for 20 of the 24 S&P industry groups.
The bottom line is that Wednesday was essentially a non event. As a result, we are watching both the momentum background, which is beginning to deteriorate, and the uptrend line from the February 5 low, which is crossing through the 1102 area. A confirmed reversal in momentum, coupled with a breach of the trend line, would do much to confirm that a short term top is in place and that the intermediate pressures are reasserting themselves. The implications would be for at least a test of 1044.
Nearby support is at 1112-1105 then 1086 and the 1078-1075 breakout point. We still regard 1029-1020 as tactical support but, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
As for resistance, our focus is on the 1131-1150 range.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Tuesday, the S&P 500 posted its third straight gain with a rally of 0.2%. Breadth was positive by 7:3 and up volume was better than down volume by an 8:5 margin. Total volume finally increased (by 9%) on an up day, but remains below its 21-day ma.
The daily Coppock Curve is positive for 23 of the 24 S&P industry groups. While that is a large majority, it broke a string of four straight days (and six out of seven) where the oscillator had a bullish bias for all 24 groups. It seems likely that, failing a very strong day, Wednesday will see more noticeable group deterioration. Indeed, by the end of the week, the Coppock Curve could well have a bearish bias for a majority of the groups.
S&P with Daily and Weekly Coppock Curves
We have been making the case that medium term momentum (i.e., the weekly Coppock Curve), which has been deteriorating, would likely withstand the bullish pressures being exerted by the short term rally from the early February low. With a short term momentum peak seemingly virtually at hand, it appears that the weekly oscillator has, in fact, maintained its bearish bias. Indeed, it is positioned to remain weak for another 5-8 weeks. So it does appear that the weeks immediately ahead could prove to be weaker – perhaps much weaker – than the past few weeks.
In a similar vein, it is worth noting that this is the 17th week since the last 20-week cycle low in November. Since the February low was only 13 weeks into this new cycle, it is unlikely that it was a 20-week cycle low. If it was, it would be the shortest cycle since the peak in 2000. Since late 2004, early 2005 this cycle has averaged 20 weeks, and the normal “window” for a low has been on the order of 17-24 weeks. Since the last four cycles have been below average in duration, it would seem that we are overdue for an above-average – or at least an average – cycle. Thus, a cycle low may not occur for another 3-7 weeks. That puts the cycle environment in reasonable harmony with the perceived momentum background. Together they suggest that we continue to be alert for a test of the February low.
Tuesday’s rally confirmed Monday’s breakout through 110-1116. This suggests that, in the time left to it, the rally still has the potential to challenge the 1131-1150 range.
Nearby support is at 1112-1105 then 1086 and the 1078-1075 breakout point. We still regard 1029-1020 as tactical support but, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
We still hope to make our blog available to all readers in the Comments section of our website, www.wminsights.com by the end of this week. Insights and the Short Term Review will continue to be available only to subscribers. Readers interested in becoming a subscriber should send an e-mail to walter@wminsights.com. We are also on Twitter as waltergmurphy.
On Monday, the S&P 500 rallied 1.0%. Breadth was positive by almost 11:2 and the up volume was better than down volume by almost 4:1. However, total volume fell 9% to its second lowest level of the year. It is interesting to note that, of the 39 trading days year to date, 23 have posted a gain, but 13 of those have occurred on lower volume. That low volume pace has increased of late – five of the past seven up days were on lower day-to-day volume.
Meanwhile the daily Coppock Curve still has a bullish bias for all 24 S&P 500 industry groups. That said, it still appears to be on track to peak in the early days of March (i.e., this week). Obviously, we will watch that closely in coming day since a coming peak will put the daily oscillator in harmony with the still deteriorating weekly indicator.
In recent posts we have pointed to 1110-1116 as an important resistance area, reflecting the fact that it represents three different Fibonacci and chart relationships. The S&P is now at the top end of that range and, since the rising Coppock may still have a few more days of life left in it, we have to respect the potential for a penetration of that range. If that occurs, it would be at least a short term plus and imply further strength toward 1131-1150.
Even so, Monday’s high was enough to lock in the January-February decline as a complete pattern. On the surface, that decline has a three-wave (counter trend) structure. This, plus the fact that the decline was a 38.2% retracement of the preceding rally from July’s low, leaves open the possibility that this decline is simply a normal pullback within the larger post-March uptrend. However, while the January-February downtrend has been reversed, its three-wave structure has not been locked in; that will require a rally through the January high. Until that happens, it is still possible to count the rally from the February low as a counter trend move within a larger, still unfinished decline from the January high. Thus, until the January high is breached, we will remain alert for at least a test of the February low. We still think that the S&P is positioned to at least test, if not violate, its recent low near 1045. Below Thursday’s low at 1086, next support is indicated at the 1078-1075 breakout point. A breach of 1057 would be viewed as a breakdown. We still regard 1029-1020 as tactical support. However, if the S&P rallies directly through 1150, we will have to consider raising tactical support to the recent 1044 low.
All that said, even if the S&P rallies through its January high, there is the very real possibility that new highs will be met with more and greater divergences than those that already exist. As an example, the Bullish Percentage Index (BPI) peaked in September but recorded a lower high in January. Thus, a case can be made that the market’s internal peak occurred in September. As a result, higher highs by the S&P, accompanied by lower highs in the BPI, are arguably part of an important topping process. This in not unlike the bottoming process that occurred between October 2008 and March 2009. Both the S&P and the BPI made bear market lows in October 2008; the S&P continued to make lower lows in November 2008 and March 2009 while the BPI recorded successive higher highs. The rest, as they say, is history.
This together, together with the momentum configuration, suggests that the 12-month uptrend has moved into its very late stages.
