RSI Developments to Take Note Of

The daily cash S&P500 chart formed another downtrending bar on Friday and so the downward price pulse from 1520.77 continues.

Perhaps one of the most significant technical signals on the daily chart of late was Friday’s move in the RSI (Welles Wilder’s Relative Strength Index) below the level of support in bull markets. This came after the index failed to move above the level of resistance typically found in bear markets (see chart). It is this action that leads me to my Elliott wave count is that we are in a “c” wave which is part of either an Expanded Flat or Triangle that began at the July high. If “c” is part of a Triangle it will itself be an “a-b-c” pattern. If part of a Flat it will be a “1-2-3-4-5”. In both of these options the “c” or “3” waves will themselves be five waves. Therefore, we may have just completed, or are very close to completing, iii” of c’ or iii” of 3’.

Bottom Line: My thinking is that we will see wave iv” and v” of c’ (or 3') play out this week; perhaps very quickly. As that happens I will be watching for a technical “buy” signal and then decide whether to come off the sidelines.