Light Volume Breakout

The rally extended today above the July high. This is an important outcome because it greatly increases the likelihood that the rally will continue throughout the month of August as previously proposed. It was disappointing that volume was light, but at the same time the McClellan Summation Indexes have moved solidly above the critical level that contained previous declines during the first leg up of the rally off of the March 2009 low.

Now there are clearly 5 waves up from the July 1 low, which means we have at least one more down up sequence to finish the rally. The last leg up for the Qs was 2.86 pts vs 4.04 pts for the first leg off of the 7/1 low. By similarity, we can project the target for the next 3 wave sequence at (2.86/4.04)*4.95+45.07 = 48.57. The 61.8% extension of the January range is 49.12 and the May 13 high was 48.79. I believe this range from 48.57 to 49.12 will be the most probable target for wave B up to terminate.

The low volume and the wave structure all point to a B wave for now. This would only change if we see a substantial range expansion on above average volume. I doubt we will. At the moment the B wave interpretation is the likely path with wave C down to come in September.

I will sit tight and ride the index positions for as much as I can during August with my fingers crossed that something doesn't derail the rally prematurely. The real action will be the fall selloff and the end of year rally. That is where the money will be made this year in my opinion.