Has the August Correction Begun?

Although we closed well off the lows it was a down trending day on Wednesday in the cash S&P500. A technical “sell” signal (bearish divergence between the RSI and Composite indicators) was flashed at the close. This is a “warning sign” that the expected August pullback may have begun. Let’s look a bit deeper.

The last time a bearish divergence between the RSI and Composite occurred was at the close on July 28th. That signal was followed by only a one day decline before the rally resumed. Will that be the case this time? Well, the supply/demand situation remains bullish until proven otherwise. The last confirmed break of a TD line was of the Supply Line with a calculated price objective of 1332.32! That objective remains active until a new target takes its place. Yesterday we had a qualified break of the TD Supply line and confirmation of that break today would create a downside target, negating our very bullish price objective. But until that happens I still have my eye fixed on the current daily chart target of 1020-1025.

Since any confirmation of the just mentioned TD Demand Line break would have such a shallow minimum objective (996.43), of more concern is holding above the July 29 low of 968.65. A break of that low would be proof 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 bearish divergence between the RSI and Composite Index (chart shown yesterday)mentioned at the start of this post: This signal favors the imminent start of a pullback. However; note that the TD Combo count remains at twelve. Thirteen is required for a signal.

Conclusion: Without a TD tool confirming the technical sell signal I favor only a minor correction here. That is, it can not be said that the expected August pullback has began. Therefore, although I remain bullish with a short-term target of 1020-1025, I am now very cautious. Right now only a break of 968.65 would confirm the August pullback (correction) is underway; otherwise we would have to see a failed retest of the recent (Tuesday) high.