A View from the Monthly Chart's Perspective

Within the context of the monthly chart we have been operating in a down trend (bearish mode) since the October 2007 high. A technical “sell” signal was generated at the close of November 2007 and is still in effect as of the close of July 2008. July was a downtrending month and our decline is now nine months old.

There are a few items of note on the monthly chart. The top pane is the RSI. Note that it 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. Next note that as the RSI fights to hold 40 the Composite Index (middle pane) is attempting to form bullish divergence with the RSI. If such a divergence were to occur (requires both indicators now turn up) it would be a technical “buy” signal.

Now take a look at where price is (bottom pane) as the technicals struggle to hold bull territory. We are at critical support. The July low was 1200.44. There is a major Gann line (horizontal orange lines on the chart) at 1204. The long moving average on the monthly chart (green line) is at 1192.77. 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.

In sum, the monthly chart shows the cash S&P500 index at support. Will this be a significant bottom? I don’t know. Making a bottom is a process and making low within a support area is just the first step. Before getting too bullish on a longer term basis I next want to see support hold and a technical “buy” signal generated. Finally, I then want to see the current resistance line (bold, dark red down sloping line on the price chart) broken.

If support does not hold here we must next look to the 1070-1080 area. Below that support lies at 940-975; 815-830 and 767-790.

For me, the monthly chart is just a warning not to get too overly bearish on a longer-term basis. There is underlying bullishness that must be monitored.

Quickly the daily chart. The cash S&P500 made an uptrending bar Thursday but closed sharply lower. I do note that volume was lower than the previous two bullish days and still wonder whether we are watching a possible “head fake” to the downside before we continue the rally. The short moving average will be just under the market (around 1261) today …. Let’s see if it can “contain” (not necessarily stop on a dime) the pullback. If this is a fake to suck in the bears than we will quickly see another assault on the 1289-1293 resistance area (which I think will be successful).

The Wilder stop on any open long position is now just at 1240.76.

Another Attempt at Resistance

The cash S&P500 put in another strong uptrending bar on the daily chart Wednesday. We rallied straight up to the medium moving average at 1280, pulled back and then broke through that temporary resistance area during the last hour of trading.

The bulls are now ready to attempt another assault on the 1289-1293 resistance area (which I think will be successful). However; I will be watching for a possible “head fake” today; that is, a failure to continue the rally. Such a consolidation might actually lead to a powerful move up tomorrow. Watch the short moving average (red line) to see if it can “contain” (not necessarily stop) any such pullback.

The Wilder stop on any open long position is now just at 1236.38, Tuesday’s low.

I will have a look at the new monthly chart tomorrow morning.

New Bull Charge?

Finding support on the close Monday, the cash S&P500 put in a strong showing Tuesday forming an uptrending bar. Strength was confirmed by both the higher volume and the technicals – note the RSI (top pane of today’s chart) holding the 40 level.

As it appears that the pullback from the July 23 high is over for now we should see the bulls attempt another assault on the 1289-1293 resistance area; which I think will be successful. Watch the medium moving average (blue line) at 1280 as it may provide temporary resistance.

For those bold enough (not me) to have gone long against the higher level trend the Wilder stop is now just at 1234.37, Monday’s low. Support lies here in the 1229-1236 area. The next lower level of support is at 1211-1214.

I am Back in the Saddle

A week has passed and the cash S&P500 is lower than when I last wrote. In between it was able to rally into the previously identified resistance zone of 1289-1293. After turning down from that resistance area (note the confluence of lines at that area on today’s chart) the market fell sharply to the short (red) moving average. After holding that support line for one day last Friday we have now fallen sharply again.

Price is now “retesting” the July 15 low. We closed at support yesterday. The next lower level of support is at 1219-1223 and then 1211-1216. I expect one of these three areas to hold and so I think the bulls will be able to hold the July 15 low and then rally us above the 1289-1293 resistance area.

For those bold enough to have gone long against the higher level trend down, the Wilder stop is now just below the market at 1232.88.