Continuing to March Up the Demand Line

It was another up trending day as the cash S&P500 continues to climb the TD Demand Line. Let’s update how this price action fits into the bull and bear arguments we’ve been following.

The current target on the daily chart is the 1020-1025 area, but will we hit it before a pullback commences? The first item of interest is the TD Supply line. We confirmed the breakout yesterday which favors hitting the price target quickly. The (unbelievable?) price objective from this breakout is 1332.32! Does that mean we have to see such a price? No. The supply and demand equilibrium are constantly changing. As Jason Perl writes in his DeMark Indicators book, “The objective will remain intact unless the market has a qualified downside breakout …” In my work I take the liberty to change that to “qualified and confirmed” downside breakout. So let’s look at the Demand Line now.

The TD Demand Line (the upward sloping green dashed line) stood at 998.14 yesterday. Since the low was 996.68 we broke, and qualified, that line. However, we now need to confirm it. Any open today above 998.14 is a non-confirmation. In this case we will have to re-qualify the line; which sits at 1005.51 today. Actually, since the price projection from such a downside break at this point is so shallow, of more concern 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.

Concerning the potential bearish divergence between the RSI (top pane) and Composite Index (middle pane) mentioned yesterday: An outright “sell” signal would still occur if both of these indicators were to turn down from their present level. This action would favor the imminent start of a pullback. Of course; just as was the case yesterday, the signal will not even occur if we have yet another bullish day today.

Also note the TD Combo count. It has now reached twelve. Recall that a count of thirteen (which may come as early as today) could trigger a sell signal.

Bottom Line: Bullish with a short-term target of 1020-1025 but cautious -- watching for the start of a pullback within the ongoing rally. For today, the first warning sign that the pullback has begun would be a break below the TD Demand Line with an end-of-day RSI/Composite Index divergence. A break of 968.65 would confirm the pullback (correction) is underway.