Can't Rule Out a Rally Attempt Here

It’s not a surprise but it’s now official. The swing chart of the cash S&P500 index (the orange lines on the price chart that move in “step-wise” fashion) has turned lower for the first time since the March low. The index has also confirmed the break of 886 (the 23.6% Fibonacci retracement value). This points to a move towards the 846 level (the 38.2% Fibonacci retracement value); but we may not get there directly.

Even though yesterday’s decline officially turned the swing chart bearish the RSI (top pane of today’s chart) is still holding in the area where bull markets find support. If the rally from March is truly over then a break below 38 on the RSI will come. However, the bulls shouldn’t be expected to just give up on their hard fought accomplishments. If 38 is eventually broken it may be after another rally attempt. There are timing reasons to expect some kind of a bounce here over the next few sessions.

So far the answer to the question asked in Tuesday’s posting matches my “I don’t think so …” gut feeling. It appears that the currently in force Weekly technical sell signal (RSI/Composite divergence) with TD Sell Setup may take precedence over the perfected TD Buy Setup and technical buy signal; but let’s give this a bit of time to play out. In fact, there is a possibility that the composite index (middle pane) may form a bullish divergence with the RSI if we can rally here. This would create another technical “buy” signal on the daily chart.

Bottom Line: Even with a rally attempt I remain bearish on equities here. Overhead resistance lies at both the short (solid red) and intermediate (solid blue) moving averages and then again with the TD Supply Line (dashed red line).