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.