Weekly Chart Update for August 30, 2009

The new weekly chart of the cash S&P500 shows an up trending price bar that is labeled as TD Combo #13. This completes the Combo count and demands our attention. Before we do that let’s update a couple of other price tidbits mentioned in last weekend‘s post.

The price action over the last five days has been enough to confirm the recent break of both the TD supply line (downward sloping red dashed line) and 38.2% Fibonacci retracement (horizontal blue dashed line) at 1014.14. These breaks imply that the bull move from the March low is continuing. The price projection from the broken TD supply line points to a target hundreds of points higher while the break of the Fib retracement line implies a move to at least 1122; the 50% Fib level.

Lower, more immediate targets also exist. The next TD Trend Factor target (based on the July 10 low) is at 1079.38. The Long-term moving average (solid green line now at 1090) is falling towards this level and should coincide with it in a couple more weeks.

Can we reconcile higher price targets with the just completed TD Combo? Of course; but that implies that the Combo “fails“ and does not result in a price reversal. The first item to note is the “risk“ level where the Combo signal may be proved wrong. This stands at 1062.74 and is shown as a bright red horizontal line on the chart. A qualified and confirmed break of this level would certainly allow for our higher targets. Next note that after a Combo signal there are numerous methods for taking an actual “short“ position. Going short on the close of bar #13 is very aggressive and therefore most risky. Waiting for a “price flip” (for September 4 that would be a close below 1010.48) is quite a conservative play. In-between there are numerous DeMark methodologies.

One I like is the use of TD Lines. The price action over the past week has readjusted the TD Demand Line (upward sloping green line that will be at 1014.91 this coming week). Interestingly, that level coincides with the short moving average and 38.2% Fib retracement on the daily chart.

Bottom Line: I would not consider the weekly chart bearish unless we break 1014.91 over the coming week. Even then I would not expect the mid-August low of 978 to be broken. I would view a break of 1014.91 as representing a correction within the ongoing bull run. After any such correction we would rally to new highs -- but then we may face a much more important completed TD Sequential Countdown (we are on bar #9 of 13 now).