Weekly Chart - Technical "Buy" Signal

The new weekly chart is in and contains some interesting news. The chart (shown) shows that the week’s Holiday-shortened price bar was an “outside” bar with a higher close. Notice also that the RSI made its low back on January 18 while the price low (closing basis) was made on March 14. With both price and the RSI turning up this week we have a technical “buy” signal.

The chart also has Wilder’s Parabolic SAR on it (red dots),the one standard deviation regression channel and moving averages. The tentative trading model is using the SAR as the stop point on the theoretical short trade generated on Nov. 7 at 1489.55. The stop this week is 1376.51. The fact that the weekly chart is now on a technical “buy” does not alter the trade exit. The stop is still in play and has not been hit since trade entry.

The system does not allow one to hold both long and short positions at the same time. Even if it did the weekly “buy” signal is only used as a filter. It is now giving permission to buy. The actual buy trigger is the price pulse model. The current buy point there is the February 27 high of 1388.34. Therefore it is possible that the system could get stopped out this coming week and then go long on a continued bull move.

Worried Bulls?

With yesterday’s sharp reversal to the downside the bulls should be worried. Meanwhile, we do have confirmation now that the X-pulse has completed at the March 17 low. Here is what I wrote in the March 1 entry of this blog when I described the state of the current price pulse model: “Where does the Intermediate Price Pulse stand now? It has generated a “short-term” sell signal by falling below the B-pulse low. Tony Plummer states that now we have to be careful in that the subsequent Y-pulse rally may abort the signal by retracing back above the B-pulse low point of 1327.04. However, it should not go above the previous A-pulse high of 1369.23 and then a “longer-term” sell would occur on any move below the X-pulse low (yet to be made). And so the Intermediate price pulse picture is negative.” Indeed the cash S&P500 has rallied to above the B-pulse low as the model predicts.

I have continued to develop the trading rules to be used in conjunction with the price pulse model. It all starts with the technical condition of the weekly chart (which is still on the sell signal generated in the autumn). The weekly technicals give us “permission” on trade direction. You can only trade short when the weekly chart is on a “sell”; only long when the weekly chart is on a “buy”. After permission has been granted by the weekly technicals you execute the trade when the Intermediate price pulse model flashes or confirms the weekly technicals. For instance, the weekly chart gave a technical sell signal on October 19, 2007. The Intermediate price pulse model confirmed that signal on November 7, 2007 when it broke below 1489.56.

After trade entry the issue becomes placement of the stop. Here I have decided to use Wilder’s Parabolic SAR from the weekly chart. If that is not applicable then the Intermediate term price pulse model shall be used. I will continue with this discussion tomorrow.

Y-Pulse Underway?

With yesterday’s strong uptrending price bar in place the odds have risen significantly that the intermediate term x-pulse is now in on the cash S&P500. If so, it would mean that the y-pulse is now forming and our price model tells us where resistance lies (see chart). In particular, I am watching the 1365-67 and 1385-87 levels.

Musings on Stop Placement

Regardless of the news or intraday volatility, the cash S&P500 has made downtrending bars over the past three trading days. This brought us to a new low for the year yesterday and shows that the intermediate term X-pulse low still can not be claimed to be done (see chart). Notice how the short moving average (red line) provided resistance on both March 12 and 14.

Market action has suggested that my idea of using the short term price pulse chart to generate a stop was wrong. As a swing trader who went short (when the Intermediate price pulse chart generated a “sell” on Friday, February 29 at 1327.03), the large counter-trend rally on the 11th and 12th should have been ridden out. Of course this is easy to say in hindsight but is the reason why I am trying to develop a trading model around price pulse theory.

At this point I believe that emphasis must be on watching for an intermediate (x-pulse) low. This is highlighted by the fact that an a-b-c Elliott Wave pattern may have now completed from the February 1 high. Price pulse theory says that the coming y-pulse can rally as high as the resistance zone marked. At this point a very tight stop (perhaps yesterday’s high) would be called for. Note that the weekly chart is still on a technical “sell” and so there is no thought of going long on any bounce.