Given today’s market weakness, attributed by the talking heads to sub-par growth in non-farm payrolls in April (115,000 new jobs were added vs. expectations for growth of 168,000), the daily Coppock Guide will probably prove to have peaked yesterday. A close below 1379ish would seal the deal. As the S&P is sitting about ten points below that level as of the time of this writing, the prospects of a reversal appear very highly probable. Assuming that daily momentum did plateau yesterday, the top arrived two days after the intra-day price high, and five days sooner than the model predicted as recently as yesterday.
Importantly, the inflection of daily momentum to down suggests that negative micro-term price action of the last several days has morphed into a bigger scale (short-term) downtrend. Moreover, given the overbought and deteriorating state of weekly momentum, a legitimate short-term drawdown may well be the opening act for weakness of intermediate degree.
In spite of daily momentum’s tailwind-turned-headwind state, the potential for higher highs over the near-term remains still intact. The Elliott-Wave Theory-based case for a continuation of the rally, as outlined on Monday still breathes, as long as the April 23rd low of 1358.79 holds.
It is now possible however, that the call a week ago for higher highs was right and that the intermediate-term correction has commenced (I had previously outlined these alternatives as being mutually exclusive). In a previous missive, I indicated that Elliott Wave rule suggested that new highs were the minimum requirement for the advance. I qualified that statement though with the phrase “almost certainly”. Rather than attempting to hedge against the possibility of being wrong, my equivocal verbiage was intended merely to accurately reflect the range of possibilities and their likely probabilities.
In the vast majority most cases, Wave 5’s do in fact extend to new extremes. However, rarely, in a phenomenon known as truncation, these moves fall short of this objective. Again, I do not intend to justify a (potentially) bad call here. Rather, given that the Dow Jones Industrial Average did fulfill the minimum requisite for the advance by besting its April 2nd high with the May 1st run-up to north of 12,338, it seems especially possible that the April 23rd through May 2nd advance in the S&P 500 represented a truncated fifth wave.
In closing, uncertainty regarding the near-term outlook continues to abound. I have not officially abandoned the fifth wave higher outlook though. However, with short-term momentum likely turning the corner and the potential that Wave 5 has already unfolded, my antennae are up and I am alert for clues that suggest the interemdiate-term top is in.
From an Elliott Wave perspective, S&P 500 price action below 1,358.79 definitively eliminates the unfinished fifth wave interpretation. Conversely, impulsive rallies would support the bull case.