Sunday, April 14, 2013

MTU Weekend Ed. - SP500 Breaks Out (4/12/13)

Bottom line - The new all time high in SP500 does not necessitate a change in long term tracking counts at the moment. The quality of the breakout is yet to impress us. Near term wave structures suggest probable 5th wave extension.

SP500 breaking out
SP500 exceeded its 2007 top and made all time highs this past week. The move is certainly significant for SP500, given its benchmark status. However, A host of other benchmark indexes having already made their all time highs weeks and months ago.   It help put SP500’s breakout into perspective. At this juncture, the new high in SP500 does not make it necessary to change the long term tracking counts since the 2000 top. See New All Time High (3/8/13) and updates in Chart 1 and Chart 2. As noted in recent weeks, the mega-cap SP100 index continues to lag.

Quality unimpressive, yet
At the moment, there is little to write home about the quality of the recent breakout in SP500.

The breakout in SP500 probably ran some stops around its 2007 intraday high (of 1576.09). SP500 moved as high as 1597.35 this past week before retracing Thursday and Friday. The bullish push by short covering from the initial batch of tight stops was weak at 21.26 index points or 1.35%. New inflows and running wider stops are required to push the index higher.

Volume is also not impressive. Volume associated with the current breakout week not only has abided by the declining volume profile for the Hope Rally but also is meaningfully shy of the volume associated with the initial breakout week in 2007 (Chart 3).

Potential extension

While a five wave advance in SP500 since its November low may be near completion (Chart 4, blue), the full retrace of a well-formed small-degree five-wave decline in SP400 (see A Top (4/5/13)) suggests probable extension.

The potential extension in SP400 likely counts as an extended wave (v) or wave (c) of a double-three (Chart 5 red and blue, respectively). Chart 6 presents the squiggles.

In light of the price structures in SP400, the potential extension in SP500 would count better as an extended wave 5 (Chart 4, black) than an extended wave 3 (Chart 4, green).