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.