Looking Through July

Although we closed higher, Thursday is classified as a “downtrending” day in the cash S&P500 index. Low yesterday was at the 1331 Fibonacci cluster mentioned yesterday. 1331 is 180 degrees from 1405 on the Gann wheel. Given the price action yesterday the odds are now raised that a five wave impulse pattern has completed from the June 5 high. Caution is called for; however, since the daily, weekly and monthly charts are all on “sell” signals. The decline from May 19 is not over.

Given the assumption that an impulse pattern has just completed, it must be put into a larger context as being wave c or iii from the May 19 high. The most bearish interpretation is the latter alternative (an impulse wave from May 19), where we just have a short, contained bounce. In this case wave iv should find resistance near the long (green) moving average in the fourth wave area of one less degree. In the more bullish scenario (where we just completed a zigzag from May 19) we can get a bit more drawn out, choppy rally back towards the 1400 level. In both events we would then decline to below the 1331 level.

My roadmap through the end of July is shown on the attached chart. In it we have made low (or will at slightly lower levels if the move from May 19 turns out to be an impulse) and then get a choppy rally into the end of the month. This rally will fail below 1406 and a move to retest the January and March lows will ensue. We may get a new low in the DJIA but I believe the S&P500 will hold and make bottom around 1290 in mid-July. A much more significant rally will then be possible.

Bottom line: I am bearish through (at least) July but let’s see what the market gives us.

Two DeMark Indicators to Ponder

We resumed the downtrend in the cash S&P500 yesterday as the bulls succumbed to the selling pressure. The index has now lost touch with the long moving average (green on the chart). This price action indicates that the correction (I have it labeled as wave four (iv’)) from Monday’s low is over.

Price action has now met all the targets mentioned Wednesday, and now stands at another important Fibonacci level: 61.8% of the move from January 23 to May 19. There is also another important cluster nearby at 1331; and, with a possible five waves down from June 5 completing we should now look for a bounce. Longer-term, the downward move from the May 19 high is not over.

As a change of pace I have added two Tom DeMark indicators to the chart today. Both indicate that we should be looking for a potential bottom here – the first time this has happened since the March low.

Market Hesitates With Inside Day Price Action

The cash S&P500 formed an inside day yesterday as the bulls continue to keep this market in touch with the long moving average (green on the chart). This price action indicates that Monday’s low is a third wave (iii’) from the May 29 high and we are now in wave (iv').

If this interpretation is correct the market should not go above 1370.11 before 1350.62 is broken.

Not a Strong Start to the Week

The cash S&P500 started the week with a downtrending day. Although the bulls fought valiantly to keep in touch with the long moving average (green on the chart) the market still looks weak here. In the bullish case: If the bounce from today’s low is a fourth wave (iv’) then it would be just shy of 150% of wave i’ and alternate with wave ii’. A move to new lows (below yesterday’s low) would be imminent. Targets include 1347-49 and 1339-41.

The more bearish interpretation is that wave iii’ is still unfolding.