I pointed out Friday that the Standard & Poor’s 500-stock index had fallen below a significant trend line connecting several low points since the March bottom and suggested two alternative scenarios for market action early this week:
If the S&P pierces the trend lines and carries on higher, it suggests that the rally is still in force. But if it makes a stuttering move that stalls below 1,060 or so, traders may suddenly realize that it’s a long way down.
It’s too early to tell for sure which scenario will play out, but it looks as though traders are opting for Plan B after the index eked out gains in the first two sessions this week amid heavy volatility. A gain is better than a loss, of course, but a few points here and a few points there will do little to help the S&P make it back to a trend line that moves higher by about two and a half points every trading day.
The index, which closed a shade over 1,045 on Tuesday, would have to climb into the 1,070s on Wednesday to reach the line. But remember, reaching it isn’t enough; only a decisive break above it would confirm that the bull market is intact.
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