Still Waiting on the Level 3 Alpha Pulse to End

Another day, another uptrending bar in the cash S&P500! The stampede continues! We have now fulfilled the 892.64 price target of the previous TD Supply line. A new TD Demand Line sits at about 879 which would be qualified on a drop below it today. 879.21 is yesterday’s low and a move below there would also trigger an REI “sell” signal.

The analytical challenge with the price pulse right now is determining whether the Level 1 Y pulse has completed or not. If so it ended at last Thursday’s high; Z ended at last Friday’s low and we are now in Alpha. In this scenario both the Level 2 Y pulse and the Level 3 Alpha pulse *must* end coincident with the Level 1 Alpha pulse. Since we want to go short when the Level 3 Alpha pulse is complete we would take a position on a break below 866.10. The other possibility is that our Level 1 Y pulse is not yet finished. In this case we would not take a countertrend position until a break below 847.12. An earlier warning *may* be given by the break of the Level 2 Beta – X trendline which stands at 856.22 today. Which way should we go for today? Use the 847.12 level. A quick break below 866.10 today would almost certainly mean that the Level 1 Y pulse concluded yesterday and not last Thursday.

One last point. The RSI has not been above the 67 level on the daily chart since this bear market began in October of 2007. It is close to doing so now. I continue to believe that the lows for the year are in but we will see a deep retracement (a retest of the March low) over the coming months. In fact, I would not be surprised that we remain in a range (oh, say 666-1100 or so) for another 18 months! An RSI value above 67 would strengthen the case that the low for the year is in.

Based on the draft trading philosophy a short position (not to exceed 3% of the account balance) would be taken on a move below 847.12 today. All such trades are hypothetical and do not constitute advice to buy or sell any instrument.