The Q1 earnings are not bad and the consumers are still spending.  The Fed was not too hawkish in the May meeting.  The Fed kept the interest rates unchanged, but will slow down quantitative tightening.  The market reacted negatively to the dovish Fed last week, only reacted positively to a less than expected nonfarm payroll growth numbers last Friday.  It was believed that the not too hot and not too bad jobs numbers are Goldilocks environment for the stock market.

But, under the hood, the stock market is not enthusiastic at all.  Since the April 19 low, the S&P 500 hasn’t had a follow thru day in the last 10 trading days.  In order to launch a rally from the April 19 low, we need a follow thru day to confirm a new uptrend.  The benefit of focusing on this, rather than the news, is that it is more reliable. An investor acts on the follow-through day regardless of what anybody thinks.

Day 1 of an attempted rally begins when a major index closes up or finishes high in the day’s range.  In this case, day 1 is April 22 that closed higher than April 19.

The count continues as long as the previous low is not undercut.  On day 4 or later, a major index rises for a big price gain with volume heavier than the day before.  This is the follow-through day.

It has been day 10 since the April 19 low.  The ideal follow thru day should happen on day 4-7.  The Fed meeting and or employment numbers should be a good catalyst for a follow thru day to occur.  But neither of those two important events triggered a follow thru day in the stock market.  That made us highly cautious about the emerging new uptrend.

We previously blogged about May 7 being the low of this 5% correction.  But based on the lack of follow thru day since the April 19 low, we believe that the market is not ready to resume the rally that started in October 2023.  Probably it will take until June to make the final correction low.  And this correction has the potential to become a 10% correction.

Below is the S&P 500 daily chart.

It is 10-day into the current daily cycle.  The 50-day moving average has been a steady resistance.  It’s an election year and we could be entering a boring summer anyway  as we are waiting for the election results.