Stampede!

The cash S&P500 made new highs yesterday as it formed an uptrending price bar. We have broken out of the range mentioned yesterday and are clearly in a bullish position. Apparently the worst of our economic problems are behind us and better days lie ahead. Supposedly this is why we have had a grand equity rally since March. I have my doubts on the economy but that is another story.

Certainly it is not a good strategy to fight the tape. Today’s chart shows the latest Price Pulse situation. Level 1 Pulses are denoted in blue; Level 2 in green, Level 3 in red and Level 4 in gold. In retrospect it is easy to see that a significant bottom has formed since “Z” pulses (usually the most significant downward pulse of a cycle) had ended at Levels 2, 3 and 4.

On the lowest level a Level 1 “buy” signal was given when we crossed the 724.12 level (horizontal blue line off the March 4 high. The down sloping green line which we broke through on March 12 was the Level 2 “buy” signal. The down sloping red line which we broke through in early April was the Level 3 “buy” signal. In retrospect it is easy to see the bullishness of the market. Going forward is always harder. Sigh.

At Level 1 we are now in a Y pulse higher from Tuesday’s low. In the Level 1 cycle from the April 15 low, the last X pulse “should have” broken below the Beta pulse bottom of April 21. Why didn’t it? Because the higher level 2 upward moving Y pulse began at that point; distorting the lower level cycle upwards. There is a 71% chance that this Level 1 Y pulse will conclude by next Monday. There is a 67% chance the Level 2 Y pulse ends today; a 95% chance that it will be done by May 7. The completion of the Level 2 Y pulse will also mark the end of the Level 3 Alpha pulse from the March 6 low. At that point we will begin a downward moving Level 3 Beta pulse and a downward moving Level 2 Z pulse. It would be prudent to protect any gains made in this rally before those declines get under way in earnest.

At this point we will only know with certainty that the Level 3 Alpha is complete on a break below 847.12. An earlier warning *may* be given by the break of the Level 2 Beta – X trendline which is shown on the chart. For me it is too late to establish new bullish positions here. Focus should be on protecting any recent gains. Catching the end of the Level 2 Beta pulse may be the next opportunity for longs.