Discontinued

All: thanks for reading this blog. It has been fun but I've lost interest (for now).

The best to everyone.

Wow!

The obvious: Not a good down for the equity markets. Another sharp fall and another downtrending day on the daily chart of the cash S&P500. This index has now lost a quarter of its total value and a full 50% of the bull run up from the 2002 low.

Unless one is apt at catching knives it is best to keep powder dry as we have now sliced through major support levels (1185-1199); priced have ignored a daily chart technical “buy” signal and yesterday’s aborted rally never came close to reaching 1255.09.

Another volatile day on tap: the futures are up 19 points as I write this (7:30 EDT) but the trend is down and there is no technical support at this point. I will stand aside and wait. Next Posting: Monday morning.

Amazing Times

After falling sharply in the early going the cash S&P500 made a strong comeback to close above the support levels (1185-1199) noted yesterday. The up close (even though it was a downtrending price bar) yesterday has the daily chart now on a technical “buy” signal. Step one to a tradable bottom has been reached. But that is not enough.

Step two: Wait for price pulse theory confirmation. The most immediate way for this to occur is for a move above 1255.09. In the meantime continue to play it safe.

Steps to Take Towards a Tradeable Bottom

Yesterday played out just about as expected. The market fell immediately to the previous Z-pulse low of 1211.54 and then bounced. We then struggled to hold that level through most of the session but surrendered and dropped sharply again into the close, ending a bit below the previous low of the year set on July 15. The negative reversal target from the Composite Index (calculated in yesterday’s post) was satisfied.

Important now is that with price at 1192.70 we are at MAJOR support:

The yearly short moving average is at 1185.33.

The quarterly medium moving average is at 1199.09.

The monthly long moving average is at 1192.43.

And at this area of major support we see the daily chart technicals trying to indicate (but not yet validating) a potential bottom. Note that even though the RSI is at a new low the Composite is above its lows set since September 5.

With price at major support and the technicals indicating a potential bottom we can look to price pulse theory to see what it would take to confirm. A key factor at this time is that on the medium time frame we MUST have a price low by this Thursday. Price action on lower time frames (intermediate and short) must match this; which means we can now look for a trigger to buy. Right now that trigger would be a move in the Delta-pulse above 1255.09. However; if that were to happen, I think we would than likely deeply retrace that move up in the subsequent X-pulse. A safer, longer-term “buy” signal would come when the Y-pulse breaks above the Delta-pulse high.

Step one to a tradable bottom: Watch for technical indicator confirmation of a price low (which must come by Thursday).

Step two: Wait for price pulse theory confirmation.

Until we see both of these steps taken I wouldn’t touch equities.

credit CRUNCH

The cash S&P500 formed an uptrending price bar on its daily chart Friday. But after the weekend events concerning large U.S. Financial Institutions all bets may be off!

Due to the fact that price pulse theory alerted us to the fact that the downtrend had been “regenerated” (see Friday’s post) I did state that the next swing (price pulse) high would be below 1274.42. Friday’s high was at 1255.09. I thought we would get to at least 1260 but it doesn’t look like that will happen now. If the Alpha-pulse (see today’s chart) is in then we are now in the Beta-pulse down.

The first area to watch is the previous Z-pulse low of 1211.54. Below that of course is the July low of 1200.44. In the bigger picture, due to positive technicals, I don’t think the market will crash here. In fact, I think that there is a good chance we will hold 1200. But even if we don’t and end up a bit below that level; I think this wash out will lead to at least a bear market rally into the autumn. I will stick to the thought that before Christmas we will have an important top; above 1313.15 (the August high) but below the May high of 1440. At that point we will start another serious leg down to new lows.

Purists may want to note that the Composite Index (middle pane) is in a negative reversal position which provides technical support for a test of this years low. Friday’s index value was above that of September 8 while price is below (1251.70 compared to 1267.79). The negative reversal target (which is a minimum downside projection) is about 1208.

Remember Price Pulse Theory?

The cash S&P500 formed an outside price bar (with a higher close) on its daily chart yesterday. After testing, and holding, the 1211-1225 area one more time I think we are continuing to build a base here from which a rally will spring. Before Christmas I think we will have an important top; above 1313.15 (the August high) but below the May high of 1440.

I believe I have made some progress in my understanding of price pulse theory. Some readers may remember posts about this subject and they can be found in the archive. Today’s chart shows that yesterday’s low was assumed to be the end of a “z-pulse”. This assumption was made because we have just had a technical “buy” signal. However, price pulse theory tells us that when we went below the x-pulse low of 1217.23 yesterday the downtrend was “regenerated”. Being in a downtrend with a technical “buy” signal is a contradiction. The way to resolve this is to have the next price pulse high (the alpha pulse) complete below the Y-pulse high of 1274.42. Where would that high be?

Our chart also contains a Fibonacci ratio analysis. Resistance levels are at yesterday’s high and then at 1260 and 1271. Intraday traders should watch those levels.

Important to Watch the Early Trading Today

The cash S&P500 formed a downtrending price bar on its daily chart yesterday. However; the closing price was up, and so we formed bullish divergence between price and the RSI and a technical “buy” signal is now in place.

That being said I certainly wouldn’t act upon that signal first thing this morning! This is indeed an interesting technical “buy” signal as the futures are down over fifteen points this morning (8:00 EDT). It looks like we may need to test the 1211-1225 area one more time – or it may be a bear trap going into the open. Let’s watch and see.

An Immediate Retest

To continue the thread started yesterday, the question now revolves around “follow through” to Monday’s huge rally. After ending that explosive up move right at the short and medium term moving averages, it became evident early Tuesday morning that the cash S&P rise was “too much too fast” and that an immediate re-test of last Thursday’s low was underway. Yesterday I stated that "Such an occurrence would be a good event for the bulls because not only do I think we would hold but it would strengthen the technicals on the daily chart." Let me explain that further.

Today’s chart not only shows the RSI (top pane) but the Composite Index (middle pane) as well. Note that the RSI is back down into the 40 area. Twice before (marked One and Two on the chart) within the consolidation since the July low has the RSI held 40. Holding 40 in this indicator is the first step in establishing a bull swing.

But holding 40 with technical strength is even better. Although it is hard to see, yesterday’s RSI value is actually a bit higher than at point #2 -- and this with price lower (remember that we use closing prices with these indicators). If price and the indicator were to close up today we would have bullish divergence between price and the RSI and a technical “buy” signal would be put into place.

Furthermore, the composite index is also higher than at point #2 two days ago. This indicates the same type of “potential” bullishness.

As usual the key word here is “potential”. We have to see the bulls hold today and close this market higher. I think they will do it. Let’s see if we can have a successful retest.

Rally Ho! At Least It is a Start.

As expected the cash S&P500 rallied strongly on the Treasury “bailout” of the GSE’s. The question now will revolve around “follow through”.

Note on today’s daily chart that yesterday’s high was right at the short and medium term moving averages. That high was also right at the short term weekly moving average and was a “natural” stopping point. If yesterday’s explosive move was “too much too fast” then we should get an immediate re-test of last Thursday’s low. Such an occurrence would be a good event for the bulls because not only do I think we would hold but it would strengthen the technicals on the daily chart.

I also want to note that during the base building that has been going on since the July 15 low the RSI has tested and held the 40 area twice (marked One and Two on the chart) with yesterday being the second time. Holding 40 in this indicator is the first step in establishing a bull swing.

Before Christmas I think we will have an important top; above 1313.15 (the August high) but below the May high of 1440.

A News Driven Market

After declining sharply on Thursday and early Friday the cash S&P500 then rallied to close higher on Friday’s close. This price action caused a downtrending day on both days. I have been expecting a retest of 1234 and have gotten it. Expectations were for a successful retest. Have we gotten that? Well the futures are saying so. They are literally surging at 5:30 am Eastern Time; up 36 points. Players obviously believe that the U.S. Government’s bailout of mortgage market GSE’s Fannie and Freddie is a “great” thing. Maybe in the short run.

I am getting off topic here but when events of this magnitude occur I like to see what the bond market participants think as their view often has a longer horizon. Bonds are selling off anticipating huge U.S. borrowing needs. This is raising interest rates which are usually negative for stocks. I have to conclude that the equity markets are too enthusiastic on this news and that later on this year we will likely see new lows.

As has been stated recently; “In any event, I do expect the next intermediate move in the cash S&P500 to be bullish. But it won’t break 1440 and will likely be over in about a month. A target? Let’s go with the converging medium and short moving averages on the monthly chart at about 1380.” My only modification to that statement due to the GSE news is that the rally might possibly have longer to run in time; but certainly will be over by Christmas.

Away Till Next Week

After surging upward at the open the cash S&P500 then turned right around and tumbled below last Friday’s close. This price action caused an “outside” price bar to form on the daily chart.

Besides the volatility there was not much of note in yesterday’s session. I am still waiting to see how the “corrective” action from the August 11 high plays out. Since I won’t be able to post again until Monday I will leave it at that.

Monthly Chart Turns Bullish

The battle at the end of August to control the monthly chart has been won by the bulls! As of last Friday’s close the monthly chart is now on a technical “buy” signal. This follows the technical “sell” signal generated at the close of November, 2007. August has ended up being an uptrending month. Our new technical “buy” signal is courtesy of bullish divergence between the RSI and Composite Index (see monthly chart).

The top pane is the RSI and middle pane the Composite Index. Note that the RSI is fighting to hold the 40 area. Within Bull markets, this is where the RSI holds. If the decline from 2007 is just a correction (basis the monthly chart) within an on-going bull market from the 2002 low then the RSI should hold 40.

We should also note that the July low was at 1200.44. There is a major Gann line (horizontal orange line on the price chart) at 1204. The long moving average on the monthly chart (green line) was at 1192.77 in July. Other moving averages of import: The short Yearly average is at 1191.08 and the Medium Quarterly average at 1201.35. All of these values form a support area from 1191-1204. We held that support area in July and generated a technical “buy” signal in August.

Price action on the latest weekly chart can be classified as uptrending as well even though we had a lower weekly close. This chart is also operating off of a technical “buy” signal that was generated on July 18.

Glancing at the daily chart we saw downtrending action on Friday. Although this chart is also technically bullish, I have been stating that “… I think we will see a decline that drops below 1261 by early September”; which would be “… a re-test of the secondary late-July low of 1234”. My thinking was that this low would hold. Although I still have that view as my “roadmap” there is a second, more bullish way to get a short term low here: continued consolidation. A short-term low above 1263.21 over the next couple of days followed by a late week high below 1300.68 would do it.

In any event, I then expect the next intermediate move in the cash S&P500 to be bullish. But it won’t break 1440 and will likely be over in about a month. A target? Let’s go with the converging medium and short moving averages on the monthly chart at about 1380.

Now Testing the 1313 High

There can be no denying that the cash S&P500 had a very bullish day yesterday as the large uptrending price bar was accompanied by increasing volume. If my short-term roadmap is to be followed we must see a reversal before the August 11 high of 1313 is broken.

“I can’t see us going much above 1293 and I think we will see a decline that drops below 1261 by early September. In fact, we are now starting to stare at a re-test of the mid-July low; which I think will hold (at least on this retest). Bottom Line: I am short-term bearish.”

Yesterday’s price action must lead to modification of the above paragraph. “…going much above 1293 …” is now replaced by “…. going above 1313.15 …” Finally, “… a re-test of the mid-July low” is better phrased as “… a re-test of the secondary late-July low of 1234”.

Today’s chart shows resistance from 1304-1307 and then again with the old high at 1312-1315. The Wilder Directional Movement System continues to show price in a trading range (non-trending). The Parabolic SAR was broken yesterday at 1295.14 and stopping out the under-development trading system with a loss (short from 1276.84).

Waiting ....

The cash S&P500 formed an uptrending price bar on the daily chart Wednesday on lower volume. There is not much new to talk about this morning – focus remains on the same issues discussed over the past few days and I will stick to what I said “I can’t see us going much above 1293 and I think we will see a decline that drops below 1261 by early September. In fact, we are now starting to stare at a re-test of the mid-July low; which I think will hold (at least on this retest). Bottom Line: I am short-term bearish.”

The Wilder Directional Movement System continues to show price in a trading range (non-trending). The Parabolic SAR now stands at 1295.14. The under-development trading system (currently short from 1276.84) will be stopped out on a move today above the SAR.

The Fight Over the Monthly Chart Continues

The cash S&P500 formed a downtrending price bar on the daily chart Tuesday although we closed higher. Once again volume shrunk.

Updating the issues discussed yesterday: The short moving average on the weekly chart has acted as strong overhead resistance during the past few weeks and now sits at 1288.95. Also, yesterday’s slight price rise (on a closing basis) was not quite enough to put a bullish spin on the monthly chart. If the bulls want to end August with a technical “buy” signal on the monthly chart they have to do better here -- and this is what the fight will be about over the next three trading sessions.

With a low yesterday of 1263.21 the bulls were able to hold 1261. It is interesting that the short-term battle to hold 1261 seems to be connected to the longer-term fight over the monthly chart. 1261 is important. However; even if they can hold that mark again today I don’t think it will amount to much of a rally here. I can’t see us going much above 1293 and I think we will see a decline that drops below 1261 by early September. In fact, we are now starting to stare at a re-test of the mid-July low; which I think will hold (at least on this retest). Bottom Line: I am short-term bearish.

The Wilder Directional Movement System continues to show price in a trading range (non-trending). The Parabolic SAR now stands at 1297.31. The under-development trading system (currently short from 1276.84) will be stopped out on a move today above the SAR.

Fighting for the Monthly Chart

After rallying for two days on decreasing volume the bears took control of the cash S&P500 yesterday. A strong downtrending day has taken prices to just above last Wednesday’s low.

There are two items of major interest to me this morning. One; that yesterdays open was right at the short moving average on the weekly chart (shown at left). This moving average has acted as strong overhead resistance during the past few weeks (see chart). Two, yesterdays price decline has wiped out the potential technical “buy” signal that was building on the monthly chart (see my August 1 post). Of course we still have four more trading days to go – we’ll see how it ends up. In any event, these two facts cast more of a bearish tone to things as we head towards the traditional end of summer here in the States (Labor Day).

The short-term question now is whether the bulls can hold 1261. Even if they can I don’t think it will amount to much as far as price goes. In fact; I think what the bulls really want to do this week is turn the just-mentioned monthly chart positive. That is where the real battle lies right now. They know that (at least the initial) bounce up from the July 15th low of 1200.41 is over. But can they save the monthly chart? I think we will see a decline that drops below 1261 by early September. In fact, we are now starting to stare at a re-test of the mid-July low; which I think will hold (at least on this retest).

The Wilder Directional Movement System continues to show price in a trading range (non-trending). The Parabolic SAR now stands at 1299.62. The under-development trading system (currently short from 1276.84) will be stopped out on a move today above the SAR.

We are Retesting the August High Now

Although we ended last week strong on price action (the cash S&P500 formed an uptrending day opening on the low and closing just under the high) I was a bit concerned by still lower volume (compared to the previous two sessions). Price Up and Volume Down is not a very bullish combination.

As a new week begins this is my current conceptual roadmap: The bounce up from the August 20th low of 1261.16 will be over by the end of this week (August) without being able to make a new high (go above 1313). At that point we will see a decline that drops below 1261 by early September. More specifically, there are two ways I see us failing to hit 1313 this week. Scenario One: A short decline starts today that holds 1261 and is followed by a bounce at the end of the week. Scenario Two: We rally above 1302 quickly to start the week and then begin to fall sharply. It will be interesting to see how it plays out.

The Wilder Directional Movement System continues to show price in a trading range (non-trending). The Parabolic SAR now stands at 1302.07 and the resistance line has just been broken. As such, my under-development trading system (currently short from 1276.84) will be stopped out on a move today above the SAR.

We'll See Price Below 1261 Before We See It Above 1313

There is not much new to report this morning as the cash S&P500 struggles a bit higher. Price action was lackluster on Thursday with lower volume but it was an uptrending day.

Yesterday’s high was at a Fibonacci cluster (see chart) and is overhead resistance again today. Above that the next band of resistance is at 1285-1288 and then not until 1300.

I wrote back on July 28 and then again August 11, “As far as a general roadmap goes I am looking for the recently begun rally from July 15 to last at least until Labor Day (early September) but I do not expect 1440 to be broken.” I am now beginning to lean towards the idea that the rally has already seen at least an interim top and that the current bounce from this Wednesdays low will be over by the end of August without being able to make a new high (go above 1313).

At that point we will see a decline that drops below 1261 by early September. At this point I don’t think we are in danger of going below the July 15 low because the weekly chart hints that the larger rally from mid-July is still not over.

The Wilder Directional Movement System continues to show price in a trading range (non-trending) and I expect that in a couple of weeks prices will be close to where they are now. The Parabolic SAR stands at 1304.68. My still under-development trading system is short from 1276.84. A move today above the SAR would stop me out (and not go long since the D-wave trend is still down).

Generally Range Bound Over the Next Couple of Weeks?

The cash S&P500 formed a downtrending bar with a higher close and higher volume on the daily chart Wednesday. We made low at the Dynamic Gann Line (down sloping purple line) at the bottom of our identified support range and then rallied to finish the day higher.

Although a rally appears to have started here I am not hopeful that the bulls will be able to move prices back above 1313 on this bounce. Instead, I expect a choppy upwards move over the next week that fails to make a new high followed by a decline that drops below yesterday’s low by early September. The Wilder Directional Movement System continues to show price in a trading range (non-trending) and I expect that in a couple of weeks prices will be close to where they are now.

The Parabolic SAR stands at 1307.46. My still under-development trading system is short from 1276.84. A move today above the SAR would switch me to long.

Pullback Continues

The pullback in the cash S&P500 continued with another downtrending day yesterday. Volume increased a bit on the decline as prices fell from the open before reaching the 1262-1266 support area right before the lunch hour. We then moved sideways the rest of the session as support held. The price action now marks Friday’s high as a price fractal and so the Resistance line on the chart is now much steeper and sits at 1293.73 today.

Today will be an important day. A rally from the off that leaves yesterday’s low in place gives the bulls at least a fighting chance to attack the 1313 level again. Any move under yesterday’s low and; although the immediate decline might end very quickly, I think we will fail to move above 1313 on the next rally. Today’s chart shows support right under the market at 1261-1265 and then at 1249-1250.

The Wilder Directional Movement System is now out of the market and indicates that price is now in a trading range (non-trending). The Parabolic SAR stands at 1310.41. My still under-development trading system is short from 1276.84. A move today above the SAR would switch me to long.

Pullback Underway

The bulls met their match yesterday as the cash S&P500 formed a downtrending day. This move down was sufficient to cause the August 11 high of 1313.15 to become a CIT (Change-In-Trend). One bit of information that points to a pullback rather than a new bull leg is that volume decreased yesterday. Additionally the weekly chart is on a "buy" signal and the 1313 high was only minor resistance on that chart.

Of the two short-term scenarios laid out yesterday the market has chosen the bearish alternative. In this situation I see the immediate decline ending very quickly and holding above the July 28 low of 1234. Today’s chart shows support right under the market at 1274 and then at 1262-1266 and then 1249-1250. We should see a bounce higher beginning over the next day or so that again tries to surpass 1313. It will be the character of this bounce that tells us much about how weak the market is or is not becoming here.

The Wilder Directional Movement System remains long from 1297.85 but will go neutral on any move today below yesterdays low. Meanwhile the Parabolic SAR was breached and is now above the market at 1312.38. The price drop yesterday put my under-development trading system in a short position from 1276.84. A move today above the Resistance line at 1309.06 and SAR would switch me to long.

Can the Bulls Break 1313 on This Thrust Up?

The cash S&P500 formed an uptrending day on Friday and there is not much change in our overall viewpoint at this time. We made low Friday in the former resistance band between 1289 and 1293 as this area is now support. High for the day was made above weak resistance at 1298 and that is where we closed, sitting right on the Dynamic Gann Line that provided resistance Thursday.

The Wilder Directional Movement System remains long from 1297.85 while the Parabolic SAR remains at 1276.84. A price drop below that SAR level (which would also be below the current support line at 1287.61) would put my under-development trading system in a short position.

I am now not so confident that the market will be able to reach last Monday’s high of 1313 on this rally attempt. There is a band of resistance from 1304-1307 and then the down sloping resistance line (dark red) is right above that. There is then resistance at the old high (1313-1315). If the bulls can rally this market past 1315 then the first target is at 1319-1322.

As always, there are two scenarios here. The bullish case is supported by the technicals as both the daily and weekly charts remain on “buy” signals as previously discussed. In this case the market will push above 1313 early this week, make a shallow pullback and then continue to rally (above 1313) into late August. The bearish view is not horribly negative over the short term. It has the market failing here and declining over the next few sessions to below 1274 but holding above the July 28 low of 1234. We then get a quick bounce that again fails at 1313 in later August and is followed by a sharper decline into early September.

Once Again the Bulls Must Prove Their Case

The cash S&P500 formed an uptrending day on Thursday although volume continued to shrink. Over the short run we may have begun another push higher.

We made low yesterday just under the short (red) moving average and at the current support line (bright green). We then rallied and made high for the day very near the Dynamic Gann Line at 1298 before finishing on top of the resistance band between 1289 and 1293.

The Wilder Directional Movement System remains long from 1297.85 while the Parabolic SAR is now at 1276.84. A price drop below that level (which would also be below the current support line at 1280.44) is not expected but would put my under-development trading system in a short position.

I think the market will now try and reach last Monday’s high of 1313; but it will not be easy. After weak resistance at 1298 there are two stronger bands of resistance: 13094-1307 and 1309-11. If the bulls can rally this market past 1313 then the target is at 1319-1326. In conclusion, although I still think the trend is up I am becoming much more “nervous” about the markets ability to sustain this choppy drive up.

Held at Support Yesterday

The cash S&P500 formed another downtrending day on Wednesday, this time on higher volume. Short-term, the question now is whether the decline from Monday’s high is over.

We made low yesterday in the support area identified between 1273-1276 (which included the short moving average) and then prices firmed. Let’s see if the bulls can use this support area as a springboard to bounce prices higher.

The Wilder Directional Movement System is long from 1297.85 while the Parabolic SAR is at 1274.86. A price drop below that level (which would also be below the current support line at 1276.77) is not expected but would put my under-development trading system in a short position.

At this point I personally believe the trend remains up from the July 15 low. If a new bounce has started then we first have to clear old overhead resistance between 1289 and 1293. After that there is weak resistance at 1298 and better resistance from 1304-1307. As you can see the bulls are going to have to work hard to get above Monday’s high. If they do then the first target is at 1319-1326.

From July 15 and Still Continuing: Higher Highs and Higher Lows

The cash S&P500 formed a downtrending day on lower volume Tuesday. What I believe will be a short, shallow pullback continues from Monday’s high.

Today’s chart shows yesterday’s low at a Fibonacci 23.6% retracement (dashed horizontal line) of the move from the July 15 low. If the decline continues past this natural support level then the next area of support is 1273-1276. Please note that the August 8 low of 1262.11 is now a price fractal so that the current support line (bright green) has steepened.

The Wilder Directional Movement System is long from 1297.85 while the Parabolic SAR is at 1269.26. A price drop below that level (which would also be below the current support line at 1273.11) is not expected but would put my under-development trading system in a short position.

Once the uptrend resumes the first target is at 1320-1322 and I would not be surprised to see that level by early next week. A stronger band of resistance can be found from 1343-1351 but I am beginning to think we will not hit that without an intervening correction first.

Rally Continues

The cash S&P500 formed an uptrending day on higher volume Monday. The rally from the July 15 low continues and there is not much new to add.

As today’s chart shows, yesterday’s high was at the Dynamic Gann Line (light blue line) and we closed right at the weekly moving average (not shown). A short, shallow pullback may have begun from yesterday's high. The next area where we could see some resistance once the uptrend resumes is from 1318-1322. A stronger band of resistance can be found from 1343-1351.

The Wilder Directional Movement System is now long from 1297.85 while the Parabolic SAR is at 1262.11. A price drop below that level (which would include the current support line in bright green at 1263.15) today is not expected but would put my under-development trading system in a short position.

Bulls Did What They Had To!

The cash S&P500 formed an outside day on Monday. After slipping slightly under Thursday’s low the bulls were able to do what they had to do to keep this rally alive: move price immediately back above 1291.67 and we are now at the top of the overhead resistance band of 1289-1296 (see chart).

Should the rally continue, we see that; after minor resistance at 1307, there is a stronger band of resistance from 1315-1322. This area includes the short moving average from the weekly chart.

We had a bullish crossing of the DI lines yesterday in the Directional Movement System is concerned. Wilder says that the point to go “Long” is now yesterdays high of 1297.85. Note that this “system” is currently flat. The Wilder stop (Parabolic SAR) on a previous long position is now at 1260.89. A price drop below 1260.53 (the current support line in bright green) today would put my under-development trading system in a short position.

As I wrote back on July 28, “As far as a general roadmap goes I am looking for the recently begun rally from July 15 to last at least until Labor Day (early September) but I do not expect 1440 to be broken.” I still believe this to be the case. Bottom line: The short-term trend is still up: bear market rally continues.

Failure at Resistance - Again

The cash S&P500 formed a downtrending day as it failed at overhead resistance. This is the second time that the average has failed to make it through the 1289-1296 area. At the end of the trading session price was sitting on support (provided by two moving averages and a dynamic Gann line) as seen on the provided chart.

The Directional Movement System remains flat as we failed to push above Wednesday’s high of 1291.67. The Wilder stop (Parabolic SAR) on any open long position is now at 1255.85.

A failure to rally immediately back above 1291.67 today would cause Wednesday’s high to become a price fractal high. Such a development would significantly raise the odds that a swing high has been made. This; in turn, implies that the market will break below 1247.45 and test 1234.37. A break of 1234.37 implies a retest of the July 15 low.

A price drop below 1257.91 today would put my under-development trading system in a short position.

Now the Bulls Must Break Overhead Resistance

The cash S&P500 made an uptrending price bar on the daily chart Wednesday although volume declined. Price is now right up against the resistance band of 1289-1296. The question of the day is “Can the bulls break this barrier?” If the answer is no then the strength of this bear market rally will be called into question and the July 28 low may have to be retested yet again before we can have even a chance to move higher.

As far as the Directional Movement System is concerned, we had a bullish crossing of the DI lines yesterday. Wilder says that the point to go “Long” is yesterdays high of 1291.67. Note that this “system” is currently flat.

The Wilder stop on any open long position (which was not based on the two Wilder systems mentioned in the preceding paragraph) is now at 1251.87. Note that my own under-development trading system is flat here since it will only trade with the weekly trend - which is down.

Bulls Do Hold July 28 Low

It was FED Day yesterday and the market celebrated with a strong advance (uptrending day) on increasing volume. Although the short term moving average (bright red line at 1264) did not contain the market during the recent Fibonacci three day decline, it never rolled over and the last pullback low of July 28 held. Now we need to see follow through to the upside to say that the drop over the past few days was indeed a “head fake”. The bulls need to move this market through the resistance band of 1289-1296.

And I think they will. Yesterday’s strong price action means that the daily RSI held the 40 level and the Composite Index created a positive reversal signal - the technicals on the daily chart are once again bullish. More importantly perhaps is that the cash S&P500 was able to break through its resistance line (bold dark downsloping red line).

In my post of Friday, July 18 I wrote:

“… the ADX line (see chart) has now turned down. Wilder says “There is nothing wrong with exiting the system trade when this occurs and reentering in the direction of the next crossing of the DI lines or reentering if the ADX line again turns up.” That is, exiting shorts for now and waiting for further developments. We’ll keep an eye on it.”

Well, the ADX line (black line on chart in top pane) has continuously declined since then and now we are close to a new, bullish, crossing of the DI lines. A move today above the resistance bands would probably do it. The Wilder stop on any open long position (which would have been taken against the trend) remains at Monday’s low of 1247.45.

Yes, short term the market is looking bullish but I continue to think it is within the context of a bear market rally. I remain rooted to what I wrote on July 21: “As far as a general roadmap goes I am looking for the recently begun rally from July 15 to last at least until Labor Day (early September) but I do not expect 1440 to be broken.”

Bulls Need to Hold the July 28 Low

In a previous post I stated that even though the monthly chart had an underlying bullish “hint” to it we were still operating within a down trend (bearish mode) and the technical “sell” signal that was generated at the close of November 2007 is still active. The bullish “hint” is due to the fact that we are now at chart support while the technicals are firming.

Yesterday I showed that the weekly chart had made low and generated a technical “buy” signal at Monthly chart support. However, since the trend is down I am viewing this event as signaling only a bear market rally at this point and not a new bull market.

Looking at the daily chart of price (bottom pane) along with the RSI (top pane) and Composite Index (middle pane) we can see that the last two technical signals help to flesh out this story. There was a buy signal coincident with the weekly buy signal at the July 15 low. However, on July 30 the new highs in both price and RSI were not confirmed by the Composite Indicator and so a sell signal was created. Since that signal the market has sold off for three days. I have been viewing this sell off as a “fake”, that is; I have been thinking that it is just a pause in the action before we continue to the upside. However, I have also been thinking that the short term moving average (bright red line at 1262) would contain the market. It hasn't.

Now note that the RSI remains above 40. Holding the 40 level is crucial in distinguishing a pullback in the uptrend since July 15 from a dive to new lows. More importantly, the Composite Index is now below its July 28 value while price is not. If the market can hold here and turn up the Composite will issue a positive reversal signal and the technicals on the daily chart will again be bullish. Otherwise we are looking not only at a retest of the July 15 low but perhaps even new lows!

Today’s support levels are: 1241-1243 and then the July 28 low in the 1233-35 area. The Wilder stop on any open long position (which would have been taken against the trend) is now at yesterday’s low of just at 1247.45. Let's see if the bulls can hold the July 28 low!

A Brief Look at the Weekly Chart

In my last I said that even though the monthly chart had an underlying bullish “hint” to it we were still operating within a down trend (bearish mode) and the technical “sell” signal that was generated at the close of November 2007. The bullish “hint” was due to the fact we are now at chart support while the technicals are firming. Today let’s drop down one time frame to the weekly chart.

Price made a price fractal low (blue diamond symbol) and Change in Trend (green ellipse) two weeks ago along with a technical “buy” symbol in the RSI. Note that these events occurred at Monthly chart support. However, we also know that the trend is down as measured by D-Mark Wave Analysis and shown in previous posts. Additionally notice where the RSI sat when it flashed its “buy” signal: below 40; which is bear market territory for this indicator. In fact, all of the indicator bottoms this year have been below 40. This tells us to view the current bounce as only a bear market rally and not to get overly excited about “potential” on the monthly chart.

Making a bottom is a process and making low within a support area is just the first step. Before getting too bullish on a longer term basis I next want to see price (basis the weekly chart) rally the RSI above the 40 area and then hold that level on a pullback. Finally, I then want to see the current resistance line (bold, dark red down sloping line on the price chart) broken.

Now back to the daily chart. The cash S&P500 made a downtrending bar on Friday on lower volume. The closing price was coincident with the short moving average which is trying to “contain” (not necessarily stop on a dime) the pullback. If we can hold here then we have been watching a “head fake” to the downside and will continue the rally from the July 15 low. Failure to find support here could lead to a deeper decline and a retest of the July 28 low.

Today’s support levels are: 1253-57; 1245-46; 1240-41; and 1234-36. Below that and we are looking at a retest of the July 15 low. The Wilder stop on any open long position off of the July low is now at 1244.79 (within the second support level mentioned).

A View from the Monthly Chart's Perspective

Within the context of the monthly chart we have been operating in a down trend (bearish mode) since the October 2007 high. A technical “sell” signal was generated at the close of November 2007 and is still in effect as of the close of July 2008. July was a downtrending month and our decline is now nine months old.

There are a few items of note on the monthly chart. The top pane is the RSI. Note that it is fighting to hold the 40 area. Within Bull markets, this is where the RSI holds. If the decline from 2007 is just a correction (basis the monthly chart) within an on-going bull market from the 2002 low then the RSI should hold 40. Next note that as the RSI fights to hold 40 the Composite Index (middle pane) is attempting to form bullish divergence with the RSI. If such a divergence were to occur (requires both indicators now turn up) it would be a technical “buy” signal.

Now take a look at where price is (bottom pane) as the technicals struggle to hold bull territory. We are at critical support. The July low was 1200.44. There is a major Gann line (horizontal orange lines on the chart) at 1204. The long moving average on the monthly chart (green line) is at 1192.77. Other moving averages of import: The short Yearly average is at 1191.08 and the Medium Quarterly average at 1201.35. All of these values form a support area from 1191-1204.

In sum, the monthly chart shows the cash S&P500 index at support. Will this be a significant bottom? I don’t know. Making a bottom is a process and making low within a support area is just the first step. Before getting too bullish on a longer term basis I next want to see support hold and a technical “buy” signal generated. Finally, I then want to see the current resistance line (bold, dark red down sloping line on the price chart) broken.

If support does not hold here we must next look to the 1070-1080 area. Below that support lies at 940-975; 815-830 and 767-790.

For me, the monthly chart is just a warning not to get too overly bearish on a longer-term basis. There is underlying bullishness that must be monitored.

Quickly the daily chart. The cash S&P500 made an uptrending bar Thursday but closed sharply lower. I do note that volume was lower than the previous two bullish days and still wonder whether we are watching a possible “head fake” to the downside before we continue the rally. The short moving average will be just under the market (around 1261) today …. Let’s see if it can “contain” (not necessarily stop on a dime) the pullback. If this is a fake to suck in the bears than we will quickly see another assault on the 1289-1293 resistance area (which I think will be successful).

The Wilder stop on any open long position is now just at 1240.76.

Another Attempt at Resistance

The cash S&P500 put in another strong uptrending bar on the daily chart Wednesday. We rallied straight up to the medium moving average at 1280, pulled back and then broke through that temporary resistance area during the last hour of trading.

The bulls are now ready to attempt another assault on the 1289-1293 resistance area (which I think will be successful). However; I will be watching for a possible “head fake” today; that is, a failure to continue the rally. Such a consolidation might actually lead to a powerful move up tomorrow. Watch the short moving average (red line) to see if it can “contain” (not necessarily stop) any such pullback.

The Wilder stop on any open long position is now just at 1236.38, Tuesday’s low.

I will have a look at the new monthly chart tomorrow morning.

New Bull Charge?

Finding support on the close Monday, the cash S&P500 put in a strong showing Tuesday forming an uptrending bar. Strength was confirmed by both the higher volume and the technicals – note the RSI (top pane of today’s chart) holding the 40 level.

As it appears that the pullback from the July 23 high is over for now we should see the bulls attempt another assault on the 1289-1293 resistance area; which I think will be successful. Watch the medium moving average (blue line) at 1280 as it may provide temporary resistance.

For those bold enough (not me) to have gone long against the higher level trend the Wilder stop is now just at 1234.37, Monday’s low. Support lies here in the 1229-1236 area. The next lower level of support is at 1211-1214.

I am Back in the Saddle

A week has passed and the cash S&P500 is lower than when I last wrote. In between it was able to rally into the previously identified resistance zone of 1289-1293. After turning down from that resistance area (note the confluence of lines at that area on today’s chart) the market fell sharply to the short (red) moving average. After holding that support line for one day last Friday we have now fallen sharply again.

Price is now “retesting” the July 15 low. We closed at support yesterday. The next lower level of support is at 1219-1223 and then 1211-1216. I expect one of these three areas to hold and so I think the bulls will be able to hold the July 15 low and then rally us above the 1289-1293 resistance area.

For those bold enough to have gone long against the higher level trend down, the Wilder stop is now just below the market at 1232.88.

Summer Rally Ahead?

The cash S&P500 formed a classic “inside” day on Friday; this being consolidation of recent gains. The market generally just “sat” upon support as shown by the low being right at the short moving average (thin red line on chart). However, this “do nothing” day did show some signs of bullish strength. For one, the open was above the down sloping resistance line and has thus qualified the break above it. This makes the “Supply & Demand” system bullish although those willing to trade in concert with the larger trend will pass up this opportunity.

Traders with an appetite for more risk will be emboldened here by the action on the weekly chart, which flashed a technical “buy” signal at the close Friday. Those viewing that event as granting permission to trade the daily chart might want to consider the Wilder SAR on the daily as a stop loss point: 1202.89; which is just above the current daily chart “support” line.

Once again we start trading right at the top of a band of support (1251-1258 area). A break below that would indicate we may have to retest the recent July 15 low. Above the market the way appears clear until you reach resistance in the 1289-1293 area. Above that there is minor resistance in the 1320 area and strong resistance between 1340 and 1350.

As far as a general roadmap goes I am looking for the recently begun rally from July 15 to last at least until Labor Day (early September) but I do not expect 1440 to be broken.

Finally, I plan to take a brief break over the next week or so. My next posting will be on July 29.

ADX Line Turns Down

The cash S&P500 formed showed follow-through to the upside yesterday and another uptrending day was formed on the daily chart. Volume was also strong Thursday and so it looks like a real “bounce” is underway. In fact, the ADX line (see chart) has now turned down. Wilder says “There is nothing wrong with exiting the system trade when this occurs and reentering in the direction of the next crossing of the DI lines or reentering if the ADX line again turns up.” That is, exiting shorts for now and waiting for further developments. We’ll keep an eye on it.

We start the day right at the top of the band noted as overhead resistance yesterday. This same band now becomes support and lies in the 1253-1258 area. A break below that would indicate we may have to retest the recent low. Above the market there is minor resistance at 1270-76 and much stronger resistance in the 1292 area.

As far as the new-fangled “Supply & Demand” system goes, it is neutral. The methodology will not take a trade to the long side here since the trend is down. Although price broke through the resistance line yesterday it was not a “validated” break in accordance with DeMark rules. We would need to see a “validated” break before considering any long position based solely on trendline breaks.

Retracement Beginning?

The cash S&P500 formed a strong rally (uptrending) day on the daily chart. Disappointing (to those of the bullish persuasion) must be the fact that volume was lower than on Wednesday. More positive was the fact that; at least for now, it seems that price has held firm at critical long term support in the 1188-1204. Although the ADX nudged higher again it does lag just a tad so we’ll see what it does over the next couple of sessions. A technical “buy” signal has been generated on the daily chart and the weekly will see it as well if we can continue this rally over the next two days. But that is only an “if” at this point.

Since the weekly trend is down (Using the D-Wave on the weekly chart to define trend) any rally (from Tuesday’s low) at this point must be considered as only a retracement of the move down from the May high. If I had to pick one target zone for price at this point it would be 1342-1351.

We start the day in a band of overhead resistance which stretches up to 1260, which is associated with the current resistance line. Above that we are clear to run at 1290. Once again support below the market is in the 1188-1204 area.

To continue with Wilder’s Parabolic Stop and Reverse methodology, the stop on any remaining shorts would be just above the market at 1250.65.

Bears Should not get Over Confident

The cash S&P500 formed a downtrending day on the daily chart. It was another volatile ride intraday as we fell quickly into the area I described as critical longer term support yesterday, 1188-1204. We bounced strongly from the top of this zone but fell again into the close. The ADX rose yet again – what else can be said except that the downtrend remains intact.

Using Wilder’s Parabolic Stop and Reverse methodology, I would continue to keep a very close stop on short positions at 1253.86. We have now had five trading days with an RSI below 32 and so the odds of a strong rally beginning should not be underestimated. Once again support below the market is in the 1188-1204 area.

Stretching Until it Snaps?

Another day, another downtrending bar and another move up in the daily ADX value (see chart). There is not much more to add except maybe to note that 1225 is 120 degrees down on the Gann wheel from the September high. If we continue down then 1188-1204 is critical longer term support.

At the present time I would continue to keep a very close stop on any short positions. The 2-day high of 1257.27 is an objective choice although money management rules should govern the ultimate choice.

Trend is Down but Price Looks Exhausted

Last week ended with a volatile day but when it was all said and done we had another downtrending day. The unrelenting downtrend continued as the ADX value nudged higher yet again and the practical result was a whipsawed long position in the still under development “Supply & Demand System”. From a long position at (theoretically) 1245.25 on Thursday’s open to a “Stop and Reverse (SAR)” point being hit on Friday at 1240.80, it was an unsuccessful trade against the trend.

I will implement the idea of trading only in concert with the higher level trend by instituting the following advice from Thomas DeMark who recommends strongly: “ … that a longer-term wave perspective of price activity be followed as well, in order to serve as an overlay defining the market’s direction. In other words, once the environment is identified, only accept trades that are in concert with the trend.”

This morning’s chart shows the D-Wave installed on the weekly chart of the cash S&P500. There are eleven waves up from the 2002 low; that is, the trend is clearly up until the October 2007 high. When the August 2007 low was broken the trend changed to down and we are in the third wave down now. This definition of trend is objectively derived and would have allowed only long trades until August 2007 and only short trades from that time until now.

At the present time I would keep a very close stop on short positions as price may well be exhausted (at least temporarily) on the downside here. That is, a bear market rally may be imminent. The 2-day high of 1257.65 is an objective choice although money management rules should govern the ultimate choice.

Worrisome

A downtrending day with a higher close has put the “Supply & Demand System” in a long position from yesterdays open. Hopefully you saw yesterday’s typo and saw that 15 “contracts” were being used in the sample money management section; 500/32.78 = 15.25. Anyway, the practical question now revolves around trade management, specifically, where to place the stop.

In the current environment we do not have much room for error; and, for what it is worth, I don’t have a good feeling about this trade. We did make a new low yesterday and the ADX continues to rise indicating the down trend is still in force. More importantly for my immediate purposes, the current “support” line is right underneath the market. A break of that line would nullify the current bullishness and should be used as a Stop Loss level or a “Stop and Reverse (SAR)” point. This morning the support line sits at 1240.80.

Educational use only. Never intended as investment advice.

Step Right Up and Take a Chance

After tip-toeing higher at the open the cash S&P500 tripped and fell heavily, making a new low (closing basis) for the decline that started last autumn. This price action led to an uptrending bar with a lower close on the daily chart that leaves the market delicately poised between support (green line on chart) and resistance (red line on chart).

Although the downward trend is still in force (as shown by the fact that the ADX continues to rise), there are bullish divergences forming here between price and the technical indicators I use. In fact, if we can rally strongly the next two days the weekly chart would confirm the price action by triggering a bullish technical signal itself. But that is a “what-if” scenario. What does the objectively based plan dictate?

Perhaps surprisingly it says the following:

IF we OPEN at 1240.76 or below go SHORT with a stop at 1273.55.

IF we TRADE at or above 1240.19 go LONG (unless you are already short) with a stop at 1207.41.

Stop loss levels “drive” position size and money management rules allow a risk of no more than 0.5% of account equity. For example, on the theoretical long trade above, the risk is set at 32.78 points. If the account was worth $100,000 we have a situation where $100,000 x 0.005 yields a maximum loss of $500 allowed on the trade. $500.00 / 32.78 stop = 174.3; rounded to 15 share maximum. The practical result is that 18.6% of the account is used to “bet”.