Thoughts for Tuesday, April 8, 2008...

I just wanted to share another quick thought about the recent rally on the S&P 500. The chart below is not the clearest explanation that I have ever made, but I think it gets across the general idea. If we look at a closing price chart of the S&P 500 since the closing low of March 17, we will see that this index has made three upward thrusts.

The first thrust took place on March 18, and assumed a length of 54.14 points. The second thrust began with the closing low set on March 19 and extended up to the high set on March 25. This thrust assumed a length of 54.57 points. Our third thrust high took place between March 28 and April 1. The length of this wave was 54.96 points. You might have noticed that this gives us three thrusts higher that have each assumed a length of roughly 54 points.

Just for the sake of speculation, let us assume that we begin a fourth thrust up from today's close, which was at 1365.54. If we were to use the median length of the three thrusts and assume that our final thrust will assume a roughly equal length, that would suggest that the S&P 500 might make one more thrust higher to 1420.11. As this chart also points out, that would run the S&P 500 up to a level just above the 200-day exponential moving average. It would also put us at an interesting level from the perspective of Fibonacci analysis.

If we back up for a moment and look at the decline down from the closing high set on October 9, 2007, then we can see that the S&P 500 declined 291.79 points to a closing low of 1273.37 on March 10. A fifty percent retracement of this decline would rally the S&P 500 to around 1419.26. That would put us in the same neghborhood as the thrust suggested by our first chart.

I have mentioned that I am not terribly impressed by the rally we have seen since March 10. At the same time, the markets have traded rather flat over the last few days, and I tend to agree with the old adage "never short a dull market." I have little doubt that a dramatic thrust up to 1420 over a short period of time would cause a great deal of excitement. Nevertheless, I would view that level as an excellent point for a reversal from more than one perspective of the Elliott Wave Principle.