Technical Analysis of the financial markets using Elliott Wave, Gann, Fibonacci, cycles and momentum indicators.
Posted information is for educational purposes only and not a recommendation to buy or sell any stock. This site is dedicated to the study of technical analysis.
The obvious: Not a good down for the equity markets. Another sharp fall and another downtrending day on the daily chart of the cash S&P500. This index has now lost a quarter of its total value and a full 50% of the bull run up from the 2002 low.
Unless one is apt at catching knives it is best to keep powder dry as we have now sliced through major support levels (1185-1199); priced have ignored a daily chart technical “buy” signal and yesterday’s aborted rally never came close to reaching 1255.09.
Another volatile day on tap: the futures are up 19 points as I write this (7:30 EDT) but the trend is down and there is no technical support at this point. I will stand aside and wait. Next Posting: Monday morning.
After falling sharply in the early going the cash S&P500 made a strong comeback to close above the support levels (1185-1199) noted yesterday. The up close (even though it was a downtrending price bar) yesterday has the daily chart now on a technical “buy” signal. Step one to a tradable bottom has been reached. But that is not enough.
Step two: Wait for price pulse theory confirmation. The most immediate way for this to occur is for a move above 1255.09. In the meantime continue to play it safe.
Yesterday played out just about as expected. The market fell immediately to the previous Z-pulse low of 1211.54 and then bounced. We then struggled to hold that level through most of the session but surrendered and dropped sharply again into the close, ending a bit below the previous low of the year set on July 15. The negative reversal target from the Composite Index (calculated in yesterday’s post) was satisfied.
Important now is that with price at 1192.70 we are at MAJOR support:
The yearly short moving average is at 1185.33.
The quarterly medium moving average is at 1199.09.
The monthly long moving average is at 1192.43.
And at this area of major support we see the daily chart technicals trying to indicate (but not yet validating) a potential bottom. Note that even though the RSI is at a new low the Composite is above its lows set since September 5.
With price at major support and the technicals indicating a potential bottom we can look to price pulse theory to see what it would take to confirm. A key factor at this time is that on the medium time frame we MUST have a price low by this Thursday. Price action on lower time frames (intermediate and short) must match this; which means we can now look for a trigger to buy. Right now that trigger would be a move in the Delta-pulse above 1255.09. However; if that were to happen, I think we would than likely deeply retrace that move up in the subsequent X-pulse. A safer, longer-term “buy” signal would come when the Y-pulse breaks above the Delta-pulse high.
Step one to a tradable bottom: Watch for technical indicator confirmation of a price low (which must come by Thursday).
Step two: Wait for price pulse theory confirmation.
Until we see both of these steps taken I wouldn’t touch equities.
The cash S&P500 formed an uptrending price bar on its daily chart Friday. But after the weekend events concerning large U.S. Financial Institutions all bets may be off!
Due to the fact that price pulse theory alerted us to the fact that the downtrend had been “regenerated” (see Friday’s post) I did state that the next swing (price pulse) high would be below 1274.42. Friday’s high was at 1255.09. I thought we would get to at least 1260 but it doesn’t look like that will happen now. If the Alpha-pulse (see today’s chart) is in then we are now in the Beta-pulse down.
The first area to watch is the previous Z-pulse low of 1211.54. Below that of course is the July low of 1200.44. In the bigger picture, due to positive technicals, I don’t think the market will crash here. In fact, I think that there is a good chance we will hold 1200. But even if we don’t and end up a bit below that level; I think this wash out will lead to at least a bear market rally into the autumn. I will stick to the thought that before Christmas we will have an important top; above 1313.15 (the August high) but below the May high of 1440. At that point we will start another serious leg down to new lows.
Purists may want to note that the Composite Index (middle pane) is in a negative reversal position which provides technical support for a test of this years low. Friday’s index value was above that of September 8 while price is below (1251.70 compared to 1267.79). The negative reversal target (which is a minimum downside projection) is about 1208.
