Monthly Report November 2007

November ended up being a downtrending price bar on the cash S&P500 monthly chart. The price pulse up from the fractal low and Change-In-Trend (CIT) at August’s low of 1370.6 is confirmed complete at October’s high of 1576.09. This number is still short of the minimum target of 1579.07 produced by the positive reversal in the RSI at the end of August when the market stood at 1473.99. As of the end of November this reversal target is still in play.

Today’s chart shows that the monthly price bars continue to bounce along the short (red) moving average; the fierce rally of the last few days preventing us from ending the month below that short moving average. In fact, we haven’t closed below that average since the bull run got underway in earnest after the 2002 low.

At the end of June 2007 (1503.35), the monthly chart gave a technical “sell” signal when the composite index failed to confirm the new May high in the RSI and both indicators turned down. We have now reinforced that sell signal since the new all-time closing high in October was not accompanied by a new RSI high and both price and the RSI have turned down in November. Last month I wrote that “Although danger may be building in this time frame, the market must be considered bullish on the monthly chart until it gives a clear signal otherwise.”

Until the positive reversal is negated or the August low violated I think the bull is clinging to life on the monthly chart with at least one more new all-time high required.

Another Elliott View

Although much more subdued, the cash S&P500 index formed another uptrending price bar on the daily chart Thursday. The price pulse upward from the low on 11/26 at 1406.10 continues. Both volume and price movement decreased on yesterday’s move, a possible sign that interest in the immediate move is fading.

Not much to add today. As you know I am always looking at possible wave counts in real-time. As we have been speculating on whether the action from the July high is an a-b-c-d-e contracting triangle or an a-b-c expanded flat, today I present a count that has the entire move down from the 10/11 high as an “Ending Diagonal” (also known as a “Terminal Impulse” or “Ending Diagonal Triangle”) pattern. This would mean that the move from the July high to the August low was “a”, the move up to the October high “b” and the Ending Diagonal shown today the “c” wave in a large expanded flat. Just food for thought.

I will try to update the new monthly and weekly charts over the weekend.

Is it an Ending Diagonal? Positively Maybe.

The cash S&P500 index surged forward yesterday on an uptrending price bar. The low on 11/26 at 1406.10 is now marked as a CIT (Change-In-Trend) by the green ellipse and as a price fractal low (blue diamond). Both volume and price movement increased on yesterday’s move, a bullish sign. Recall that we just had bullish divergence between price and the RSI.

Yesterday I presented a speculative wave count that showed a corrective a’-b’-c’ pattern developing from the October 11th high at 1576.09. In any such “a-b-c” correction the “c” wave must be a five. As depicted the five waves down from the 10/31 high may have unfolded as an “Ending Diagonal” (also known as a “Terminal Impulse” or “Ending Diagonal Triangle”) pattern. Most times the market will react violently after the completion of such a pattern. As Frost and Prechter state in the classic “Elliott Wave Principle”, “… diagonal triangles all imply the same thing: dramatic reversal ahead.” (pg. 40). If this count has merit the low should be in and the 1490 resistance area will be broken.

And so I think the wave count has merit but is it the correct count? I don’t know. The a’-b’-c’ could still be a 1’-2’-3’ and we could be in 4’ now. If so we will not break 1490 and then we will see another new low in 5’. I guess time will tell.

Sadly the astute reader will have noted that gave up on trading the RSI signals right before this big move higher. Following previous moves I would be long the SPY now. Instead I skipped the trade because the weekly chart was negative. Only time will tell if I have “missed the boat.” But that is what the journal is for – to document lessons learned so that they stare me in the face and I can’t run and hide from them.

Struggling With the Count

The cash S&P500 index formed an “inside” price bar on Tuesday. Once again we had another technical “buy” signal on the daily chart as Monday’s new price low was not accompanied by a new low on the RSI.

Yesterday I presented a weekly chart which showed three price pulses down from the October high of what I believe to be a “C” wave from the July high. Today I show a potential Elliott Wave count on the daily chart that would match the weekly.

This speculative count shows the “C” wave from October as being a corrective a’-b’-c’ pattern itself. In any such “a-b-c” correction the “c” wave must be a five. As depicted the five waves down from the 10/31 high are unfolding as an “Ending Diagonal” (also known as a “Terminal Impulse”) pattern. If this count has merit we should not break above Monday’s high before we fall to a new low.

SPY Rejects My Friendly Overture

An “outside” price bar with a lower close formed on the cash S&P500. After a positive opening (which got me long in SPY) we reversed and ended badly (which got me stopped out for another loss in SPY). The development of my swing trading strategy is not progressing all that well!

In retrospect, yesterday’s statements that “A negative is that the market can’t afford to hesitate (turn down on a daily closing basis) here or negative reversals would form in the RSI”, and “Another huge concern is that the positive reversals on the weekly chart have been negated and that time frame remains on a technical “sell” signal” were the relevant analysis tidbits amongst the noise. At issue is how could I have done better by clinging on to that information rather than the bullish indicators that I did glom onto?

One way would be to let the higher time frame hold sway over the shorter. That is, since the weekly chart is on a “sell” I should only take daily short trades. Under that scenario I would not have gone long the SPY. As of this morning that would also mean I can’ consider a long position. Not that I would want to anyway as all the technicals are now weak.

Today I present the “in progress” weekly chart. Of note is the long (green) moving average which lies just below the market. Will we find support here? We did in August. Yesterday I got a comment to my post predicting that wave 3 (of C) would end at 1399. I must admit that we are in the third price pulse down (the blue lines) of what I believe to be “C”. I also have a Gann target (horizontal green line) at 1399 which is in the target box I have been eying for a while.

I will watch to see what happens whilst I lick my wounds.

On Your DeMarker .... Get Set ...

A strong uptrending price bar was the result of holiday-shortened trading in the cash S&P500 last Friday. The one day downward price pulse from the 11/20 high ended at the 11/21 low and we have a new upward price pulse developing from that point. Friday was also day 2 of a Snap-Back Reversal Day pattern. Although many are always suspicious of making much of the post-Thanksgiving Friday action (due to the usual dramatic drop in volume) I must still tackle the problem stated over the weekend of “whether or not we have just have ended the “c” wave of [the] correction.”

The first item of note is that since we turned upwards on Friday we have confirmed bullish divergence between price and the RSI indicator in the target zone identified on the weekend post of November 10-11 (1413-1417). The possibility that we might have just completed a Terminal Impulse pattern also remains. This “terminal” pattern, also known as an “Ending Diagonal”, would (if that were truly the correct count) be a larger "c" wave and complete the correction that began at the July high.

A negative is that the market can’t afford to hesitate (turn down on a daily closing basis) here or negative reversals would form in the RSI. Another huge concern is that the positive reversals on the weekly chart have been negated and that time frame remains on a technical “sell” signal.

I guess what swings the argument to “bullish” for me is that the DeMarker Indicator (shown on today’s chart) says we should be looking for a bottom here. Look for bottoms when the indicator goes below 0.3. Doesn’t mean we will get one but that the odds favor bullishness. Bottom Line: I will go long the SPY on any move above 144.35. Initial stop will be at 141.66.