Wall Street leapt higher by over six percent on Friday, an impressive one-day gain but only the fourth biggest since early October (the S&P500 (800) rose by 11.6% on 13 October, by 10.8% on 28 October, by 6.9% on 13 November and by 6.3% on Friday). Two swallows do not a summer make and four enormous up days do not a bull market make. Indeed, the composite was still down 8.4% for the week as a whole. Friday's gain, although big, has not resulted in a higher high, nor a break of downtrend resistance, nor any reversal of the prevailing downtrend. Accordingly, we remain bearish. That said, we do want to draw attention to the chart above. When the composite broke below support at 1300/1250, we pointed out that the next major support level was the lateral one at about 800. Now that the composite is at this level, we think it a likely place for a bounce. There's no proof of this yet (i.e. the downtrend is intact and we therefore remain bearish), but our analysis shows that the chance of a bounce now is higher than it has been since June. How would one know, technically, if a bounce was underway? The composite would need to make a daily close above the late October and early November lows at 852. This would produce a higher high and break the downward `staircase' pattern. Should this occur, we'd have targets of 1006 (+26% from current levels) and 1100 (+38%). On the other hand, our downside target is still massively lower if this lateral support level does not hold: should last week's low of 752 be broken, our new target will the 1993/1994 highs at 480 (40% lower). We see this as a key week. Last week, we pointed out some extreme statistics. Here's another one from Friday: 10-year Treasury yields dropped from 3.74% to 3.20% (after touching 2.99%, the lowest since regular sales began), falling below the S&P500 dividend yield for the first time since 1958.
