Weekly Report for November 24, 2007

The weekly chart of the cash S&P500 index formed its third consecutive downtrending price bar this week. The downward price pulse from the recent 1552.76 high continues.

Last weekend I noted that the RSI had produced two “positive reversal” signals. Easy come, easy go. These were negated by the price action turning lower and causing the RSI to break below the trendline established by the reversal points (see today’s chart).

Technically, this brings us back to what I wrote two weekends ago:

“On October 19th the weekly chart produced a technical “sell” signal when the RSI failed to confirm the price high. At this time we still don’t have a “buy” signal. My current Elliott count is that we are forming a corrective pattern from the July high. Furthermore, I believe that we are in wave “c” of that correction now. What else do I believe about the S&P500?

1) We will hold the August low during the current correction.

2) That the correction will terminate by the end of the calendar year.”

I still hold to those thoughts and that the Elliott pattern best fitting the weekly chart is a Contracting Triangle from the July high. The question to face on the daily chart is whether or not we have just have ended the “c” wave of that correction. Note that we have bounced from within the first of my two target zones that I have displayed over the past few weeks.

Thanksgiving Day - Markets closed or "Let them eat Turkey"

Another downtrending price bar was formed on the cash S&P500 daily chart as the one day upward price pulse from the 11/20 low ended at Tuesday’s high and we have a new downward price pulse developing from that point.

Since we made a new low on Wednesday I canceled my buy stop order on the SPY. My analysis still contains many elements that point to a market poised to reverse but those may slip away without a strong showing by the bulls on Friday. The latest chart still shows possible bullish divergence between price and Wilder’s RSI. The main difference between now and Wednesday morning is that, unless we turn upwards, it is only “possible” divergence. Price continues to be in the target zone identified on the weekend post of November 10-11. On November 8th I wrote “My next Fibonacci clusters are at 1461-1463 and then 1413-1417. … From the recent high I have Gann Wheel targets at 1469.5, 1459.5, 1437, and 1421.” Yesterday’s low was at 1415.64. You can see these targets on today’s chart. The possibility that we might be in the latter stages of a Terminal Impulse pattern also remains.

There are growing negatives. A huge concern is this week’s developments on the weekly chart. Granted we still have Friday’s abbreviated action to turn things around, but right now the weekly is at a new low (closing basis) from the July peak along with the technical indicators. I’ll examine the weekly chart (over the weekend) before deciding on whether to take any trading positions.

Futures are Down over 16 points? I will put in a Buy Stop.

Even though we had a downtrending price bar yesterday it was a Key Reversal Day (KRD). It certainly was a volatile day! A Key Reversal Day in a downtrend is one where the market opens above the prior day’s close, makes a new low, but closes above the prior day’s close and the current day’s open. The downward price pulse from the 11/16 high ended at yesterday’s low and we have a new upward price pulse developing from that point.

Adding to the bullishness of the KRD were more technical “buy” signals! Today’s chart shows the bullish divergence between price and Wilder’s RSI. This signal was registered at the close after we made low in the upper part of the target zone identified on the weekend post of November 10-11. On November 8th I wrote “My next Fibonacci clusters are at 1461-1463 and then 1413-1417. ... From the recent high I have Gann Wheel targets at 1469.5, 1459.5, 1437, and 1421.” Yesterday’s low was at 1419.28. You can see these targets on today’s chart.

So, we had a KRD with technical buy signals in an area of the chart previously identified as support (Fibonacci and Gann cluster). Finally, as presented yesterday, we might also be in the latter stages of a Terminal Impulse pattern.

Based on this technical evidence I will be placing a buy stop order on the SPY at yesterday’s high. However, I will cancel this order if we make a new low first; and this is certainly possible as I note the GLOBEX futures are down over 16 points as I type this!

This Blog Documents My Ideas ..... and MISTAKES

We had a downtrending price bar form yesterday on the cash S&P500 daily chart. It also made the high of 11/14 a price pulse Change-In-trend. The upward price pulse from the 11/15 low ended at last Friday’s high and we have a new downward price pulse developing from that point.

As I stated yesterday,”The way we break out of the small range day made on Friday will tell us volumes about the near-term direction of the market”. We broke out to the downside and this has caused me to review my work.

The main purpose of this blog is to force myself into a much more rigorous and methodical approach to my analysis. It is obviously needed as I made such an obvious mistake I could kick myself. Luckily I never was filled on the long-side and so the mistake was not one I had to pay for in real dollars. But it is embarrassing just the same. More so since it is being acknowledged in this public forum.

On Wednesday morning the 14th of November I wrote, “…finally got a technical “buy” signal! Both the Composite Index and Derivative Oscillator (shown on today’s chart under the RSI) turned up after making higher lows than the RSI (top indicator).” This is fine and good but then I ignored the indicator. FATAL ERROR. Today’s chart shows the Composite Indicator on top of the price chart. Notice that the indicator just made a higher high than it did on November 6 (these points are noted with the blue arrows). The higher high came with a lower price. This is a Negative Reversal and warns that the earlier buy signal was early. This negative reversal signal was in-place as of last Thursday.

Since these signals often come in fourth waves I have posted a very intriguing wave count. Could we be in the latter stages of a Terminal Impulse pattern? If so we are ending the “c” wave of the pattern that started at the July high.

Let’s see what happens. Any rally from here will result in new technical “buy” signals. The swing trading system I am trying to develop (another reason I use this blog to document my thoughts) will not let me do anything until such a signal is generated.

Was it a Successful Retest?

Trading action caused an inside day to form in the cash S&P500 on Friday. It also made the high of 11/14 a price fractal high and last Monday’s low a price pulse Change-In-trend and these developments are marked on today’s chart. The downward price pulse from the high of 1492.14 ended at 1443.49 last Thursday and, for now, constitutes a successful retest of the low set last Monday at 1438.53. Volume picked up on Friday, meaning that the move lower (the downward price pulse just completed) stopped on higher volume. Often times this type of price action comes at key reversal points (but not always). The way we break out of the small range day made on Friday will tell us volumes about the near-term direction of the market.

Since I continue to be in the camp that believes we are in the process of a successfully retesting the low, I will be going long the SPY (I still haven’t been filled) on any move above Friday’s high unless we get a new low first. My initial stop will be right beneath Monday’s low.