Weekly Chart Review, October 3, 2009

To recap: The quarterly chart (discussed Thursday) indicates that the bear market rally from March is maturing. Long-term investors that never got long this year should not yet be worried about “missing the bottom”. Although we can’t claim that this maturing rally from the March low is complete, the monthly chart (depicted yesterday) shows that the forty point area between 978 and 1020 is the current ground that the bulls must hold. We have now declined to the top (1019.95) of that area, and so what can the new weekly chart tell us?

After once again being turned back by the Long (solid green line on the chart) moving average we ended up with a down trending week on the cash S&P500. The decline is a reaction to the recently perfected TD Sell Setup as well as bearish divergence between the RSI/Composite Index pair and the RSI/Derivative Oscillator indicators. As an aside, it is important to note that the RSI was threatening to break upward through the range typically associated with bear market resistance. It couldn’t quite do it and has now turned down.

Over the coming week there are two salient points. First, the TD Demand Line will not be qualified if broken. Second, the Short Moving Average will be at about 1014. These two features should provide support early in the week. If so, the ball will then be in the bulls’ court. It will be imperative for them to move this market back above resistance … the Long Moving Average and TD Supply Line which will be at about 1066-1071.

Bottom Line: The bears have used the daily 9-13-9 “sell” opportunity to their benefit. It is now up to the bullish camp to use underlying support to take back control. Until they can do that I have to remain near term bearish. With a longer-term view I would not be buying equities here. If long during this great rally that began in March I would be watching to protect profits. Eyes should be focused on the 978 level; particularly if the support mentioned earlier can’t hold. There is important support at 983-986 which the bulls definitely don’t want to see broken.