Weekly Chart: At Least It Now Has Potential

The latest price bar on the cash S&P500 weekly chart is downtrending. After briefly popping upwards out of the contracting pattern that developed during February the market has now fallen towards the January low.

Back on February 8 I wrote: “Now I want to see if the weekly chart can generate a technical “buy” signal. For us to get in a position to do that this week we would need the S&P to close below 1325.19 …” Well finally we have closed below the 1325.19 level. The S&P is now at its lowest closing value since this decline began last October. Meanwhile the RSI indicator (top pane) is not at a new low for the move. This depicts potential bullish divergence. The key word in that short sentence being ‘potential’. For a technical “buy” signal to be triggered on this time frame we would need to see price and the indicator both turn up with the bullish divergence in place. It is something I will be watching for during the coming days but for now the trading system under development is still short.

X-Pulse Continues

After a brief foray into the uptrending world the cash S&P500 resumed its downtrending ways on Thursday. An important point not to miss in yesterday’s action was the failure of the daily RSI to hold the 40 level. This is a signal that the trend remains bearish on this time frame and indeed it is clear that the X-pulse continues downward from the February 27 high of 1388.34.

On the other hand (there are always two!) price is now below the important 1325.19 level and so I need to see how the weekly chart looks at the end of today. It is possible that my report this weekend will be examining what price action is necessary for a technical “buy” signal to be triggered on the weekly time frame.

But for today there is nothing to do but hold tight.

One last bullish gasp left in this consolidation?

Although we saw strength in the equity markets during the afternoon of both days, Monday and Tuesday show as downtrending price bars on the cash S&P500 daily chart. With price now hovering around the important 1325.19 level it is time to wait and see how the rest of the week develops.

Of great interest to me is the struggle to hold 40 on the daily RSI (see chart). Connie Brown teaches that a trend reversal will often begin with the market holding 40 on the retest. This is where we are now. Another reason to wait and see how the rest of the week develops.

My best guess is that the bulls will now try to rally this market back towards the marked resistance zone where the rally will fail. This, of course, will make those currently short the market sweat quite a bit.

A Monthly Chart Update

Today’s chart is a monthly view of the cash S&P500 with a longer term Elliott Wave count. February 2008 produced an “inside” price bar as the market fought to hold the medium term (blue) moving average. This chart remains on the technical “sell” signal from the RSI indicator last described in early January: “The last signal from this indicator was a “sell” that was generated at the end of November 2007 when the market turned down. October 2007 was at a new closing price high but the RSI failed to confirm. This is bearish divergence.”

From the perspective of developing a swing trading system, we do have permission to trade short (since the weekly chart is on a technical “sell” signal as is the Medium term Price Pulse chart). One potential trading vehicle to use is the ProShares SH ETF. When should the purchase of these shares be triggered? I propose that the position be entered when the Intermediate price pulse chart generates a “sell”. This occurred last Friday when the previous B-pulse low was broken. The initial stop loss point should be at 1388.34, the C-pulse high.

Weekly Update

Last Sunday I wrote about the “Arrow” and “Double Inside Bars” on the weekly chart of the cash S&P500. The bottom line was that “… the break (still continue to beware of false breaks before the actual move occurs) is now imminent!” It now certainly appears as though the pop higher into Wednesday’s peak was the false move and that we are now seeing the true break to the downside. This would make sense within the context of the technical situation on both the weekly and monthly charts – they are on “sell” signals.

Back on February 8 I wrote: “Now I want to see if the weekly chart can generate a technical “buy” signal. For us to get in a position to do that this week we would need the S&P to close below 1325.19 …” This is still the case. For the weekly chart to have a chance at generating a “buy” signal I have to see a weekly close below 1325.19.

Today’s chart depicts the “Medium” term Price Pulse points. It is one level higher than the “Intermediate” term chart. When the Z-pulse completed in January a “buy” signal would only be generated if the “C-Y” trendline could be broken. It was not as we made our A-pulse high at the start of February. After the B-pulse low was made on February 7 the new signal for a “buy” would be to punch above the A-pulse peak of 1396.02. We have not been able to accomplish that and so this chart remains on a “sell”. It also complements the weekly chart’s technical picture in explaining the current breakdown in the daily chart.

Tomorrow I will take a quick look at the new monthly chart as well as trade parameters for a new short.