Arguments by Bulls and Bears Over Near Term Direction

To recap my views as we head into August: The monthly chart (discussed Saturday) and my cycle work (posted July 25) are both short term bullish (through the Autumnal Equinox until as late as late November) but point to weakness afterwards. The weekly chart (yesterday’s post) is warning that within this bull run a pullback may be close at hand (will occur this month). The immediate question is whether we will hit the weekly chart target price of 1012-1028 before that pullback. So how does the latest daily chart add to this picture?

The current target on the daily chart is the 1020-1025 area, which nests nicely within the weekly target zone. But will we hit it before the pullback commences? The first argument against hitting the target right away is Friday’s price action. Although we closed a tad higher it was an “inside” day that failed to confirm last week’s qualified break of the TD Supply line (confirmation could only occur Friday if we had traded above 996.68). On the other hand, there is a new opportunity for the bulls since the new Supply line would be qualified on a move above 996.56. We would then have to see confirmation tomorrow.

The second bearish point here is that both the RSI (top pane) and Composite Index (middle pane) continue to show technical weakness here. An outright “sell” signal in the RSI would occur if it were to turn down from it’s present level. Of course the bulls would say that the signal will not even occur if we have a bullish day today.

The last argument by the bears is that the current TD Demand Line (the upward sloping green dashed line) that is right under the market at 990.77. A price below that level today would be qualified. The bulls respond that, even if qualified today and then confirmed tomorrow, it would only project a shallow retracement of the rally. Of more concern at this point is holding last Wednesday’s low. A break of 968.65 (Wednesday’s low) should be taken as a sign that the larger Alpha pulse (shown in my roadmap post of July 25) is complete and that the expected August pullback (Beta pulse) is underway.

Bottom Line: Bullish with a short-term target of 1020-1025 but also being cautious by watching for the start of a pullback within the ongoing rally. The first sign would be a move below the TD Demand Line. A break of 968.65 would confirm it as underway.