One Scenario Deleted

Another strong uptrending day was formed in the cash S&P500 market on Thursday. The upward moving price pulse from Tuesday’s low (which is now a price fractal low) of 1460.66 continues. Volume was lower and price movement higher on Thursday which is not a particularly bullish combination. It is often a sign that the rally is “false” unless volume comes back into the market.

From a technical perspective the market continues to show strength. The rally sliced cleanly through both the neckline of the inverse head and shoulders pattern and chart resistance (long term (green) moving average as well as strong chart resistance at the 1490 level).

One explanation of why the volume/movement combination may be a bit weak here is that many times we must come back and “test” the head & shoulders neck line we just broke through. Another potential negative I will be watching here is how the composite index is lagging the RSI on the daily chart. For now though I am long the SPY (from 149.92) in the Investopedia account I opened on August 9 to accompany these blog studies.

Of the three price scenarios laid out yesterday, we can now rule out “B”. We are left with:

A) If the price pulse low of 1460.66 marked a significant low then we should rally until into the week after next.

C) If 1488.94 was not significant then we will make a high over the next few trading days and then pullback for a few days.

The “potential” weakness discussed above leads me to slightly favor “C”. But there is not sufficient evidence to act upon. I will keep my stop on the SPY position at 146.30.

Scenarios

The cash S&P500 market reversed gears and closed higher on Wednesday forming an uptrending day. The downward moving price pulse from Friday’s high of 1488.94 was complete at 1460.66. Both volume and price movement increased Wednesday which is bullish.

Needless to say nothing was resolved yesterday. The rally went right up to the neckline of a proposed inverse head and shoulders pattern discussed yesterday. Note that this is also just below the long term (green) moving average as well as strong chart resistance at the 1490 level (see yesterday’s chart). The challenge for the bulls is to cleanly break through that resistance. Supporting the cause is the fact that the negative reversal on the daily RSI has been negated and so the current technicals are bullish.

Here is a unique take on the daily chart based on some experimental timing work I am engaged in. There are a few scenarios.

A) If the price pulse low of 1460.66 marked a significant low then we should rally until into the week after next. If 1460.66 was not a significant low then the question revolves around whether 1488.94 was a significant high.

B) If 1488.94 was significant then the market will fail to break above 1489 here and fall for about a week.

C) If 1488.94 was not significant then we will make a high over the next few trading days and then pullback for a few days.

My pending long trade of SPY will be o.k. if scenario A unfolds. I should not get filled under Scenario B. What concerns me is Scenario C. In that case I will get filled right before the market begins a correction.

Note to self: Of course Scenario C will unfold.

Buy Parameters Identified

The cash S&P500 market put in another downtrending day on Tuesday as the downward moving price pulse from Friday’s high of 1488.94 (which is now a fractal high) continues to unfold. My data shows that volume increased slightly on Tuesday’s bar and that price movement continued to decrease, again forming what Bill Williams calls a “Squat” bar. The last time this happened we ended up with a price fractal high on 11/30. Now we should be watching for a low.

The current decline from last Friday’s high can be seen as potentially forming the right shoulder in an inverse head and shoulders pattern. Note that the neckline (shown in orange on today’s chart) lines up with the long term (green) moving average as well as strong chart resistance at the 1490 level.

Breaking above (through) the 1490 area would be a sign of strength and would also negate the only technical negative I have, the negative reversal on the RSI discussed yesterday.

And so my course of action is set. I will go long the SPY on any move above 149.87. If filled my initial stop will be placed at either yesterday’s low or today’s low; whichever is lower.

Time to Retest the 11/26 low?

The cash S&P500 market formed a downtrending price bar on the daily chart Monday. The price pulse upward from 1406.10 completed at Friday’s high of 1488.94. Both volume and price movement decreased as traders lost interest in the recent bull move up from the 11/26 low.

Besides being turned back by resistance; right at the intermediate and long moving averages which coincided with the strong chart resistance at the 1490 level, the RSI has turned down to form a negative reversal with the price made on 11/6. The projected minimum price target is 1400.05.

This price action (with a price projection below that of the 11/26 low 1406.10) leaves the door open as to whether the move down from the 10/11 high is complete or not. At this point I believe it is, but even if it is not any new low should represent a good buying opportunity in SPY since that would be the Elliott wave five low. This count (not my preferred) is shown in today’s chart.

From here any move below 1458.36 (without first breaking 1488.94) would cement the idea that the Elliott wave up from 11/26 is complete. The downward move should complete by 12/20. I still plan to use this decline as a place to get long the SPY.

New Month Begins

The sharp rally off of the 11/26 low continued on Friday with another uptrending price bar forming on the daily cash S&P500 chart. The price pulse upward from 1406.10 continues. Although volume increased on Friday’s bar the price movement continued to decrease, forming what Bill Williams calls a “Squat” bar. He says (in the book Trading Chaos) “Virtually all moves end with a squat as the high/low bar plus or minus one bar of the same time period.” This would mean that a short-term high is being made here.

That shouldn’t come as a surprise when one looks at where we found resistance on Friday – right at the intermediate and long moving averages. These coincide with the strong chart resistance at the 1490 level. With the higher level time frame charts pointing to at least a retest (if not outright new highs) of the old high, the big move up from 11/26 may just be the first move in a new upwards moving Elliott pattern. If so a correction may now be due on the daily charts.

Elliott-wise I believe the odds favor the view that the low is in (11/26) but I can’t be 100% certain. And so I will go with the odds; looking for a place to get long the SPY on short-term weakness.

Weekend Update for December 2, 2007

The weekly chart of the cash S&P500 index formed an “outside” price bar with a higher close this week. The downward price pulse from the recent 1552.76 high is confirmed complete at the 1406.10 low.

Technically it was an important week as the RSI formed a positive reversal and; when viewed with the Composite Index, flashed an outright “buy” signal. These events occurred after a price low at the long (green) moving average which was just above our target box of 1390-1402. The RSI reversal indicates a minimum target of 1569.44. This is about 10 points below the monthly reversal target discussed yesterday, but note that they are “minimum” targets. At the very least they point to a retest of the all-time high.

Although I always have more than one possible Elliott Wave count they all share the common theme that we are forming a corrective pattern from the July high. Furthermore, I continue to believe that the move down from 1576 to 1406 was wave “c” of that correction. My other thoughts continue to be that:

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

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

The key Elliott question is whether wave “c” is over, not whether it ended the correction. Personally, my preferred count is that the pattern best fitting the weekly chart is a Contracting Triangle from the July high. But it doesn’t matter at this point. Is wave “c” over at 1406? I think the weekly technicals are saying “yes”, but first we will have to see if resistance can be broken at the 1490 level.