Diagonal Triangle (Wedge) Completing?

Going into options expiration day the cash S&P500 went back into rally mode, making another uptrending price bar on Thursday. This puts the market back into (at least for the moment) a bullish position. It is now apparent that the Z pulse completed at Wednesday’s low and that an Alpha pulse is underway. The “Price Pulse (PP) Theory” is now on a “buy” signal unless the Beta – Z trendline (at 844.87 today) is violated. As before, I refuse to get too bearish until I see a break in the price pulse trend, which right now requires a break below 835.58.

Please note that the Level 2 Price Pulse (green labels) is about to complete a Delta pulse to the upside. This Delta pulse is forming an Elliott Diagonal Triangle (wedge) pattern and so tight stops (on long positions) are called for.

Targets for the end of the wedge are shown on today’s chart. 876 is a Gann target from the March 6 low and 882 to 885 is a Fibonacci cluster. I also note that the Level 2 TD (Tom DeMark) supply line that was broken yesterday was not qualified. This supports the idea of limited upside here. The last TD Anti-Differential remains the down arrow at Monday’s high and the DeMark REI indicator is still on a sell (generated Tuesday).

Currently Neutral

The cash S&P500 formed another downtrending price bar on Wednesday but this time with a higher close. Indeed, it looks like the bulls will not give up without a fight. We remain on a “Price Pulse (PP) Theory” sell signal but before I can get too bearish I need to see a break in the price pulse trend, which right now requires a break below 814.53.

So far the pullback from Monday’s high has been very shallow and didn’t even reach the Qualified Level 2 TD (Tom DeMark) Demand Line target of 834.97 (we got down to 835.58). Support remains in the 826-829 level. This support is provided by both Fibonacci confluence and two moving averages. As noted yesterday, since the Z pulse is fundamentally the weakest in the entire cycle we should watch it for hints about overall market health. So far the market continues to look more bullish than bearish here.

Time-wise, the odds are high that if a short-term low is still in the making it will come today. We can’t say the low is in yet; particularly since a TD (Tom DeMark) Anti-Differential down arrow has now appeared at Monday’s high.

The current Price Pulse based on Level 2 PRP’s is in a Delta pulse (green labels) from the March 30 low and gives permission to re-enter longs on a move above 864.31.

To wrap up: currently neutral. Bullish above 864.31; bearish below 814.53.

Trendline Break

The cash S&P500 formed a downtrending price bar on Tuesday. We both broke and closed below the Beta - X trendline. The odds that we now have a PRP in place at Monday’s high are very high. If so this means that a Z pulse is underway and that a “Price Pulse (PP) Theory” sell signal is in place. I use this more as a “stop loss” event and would not go short here. That must wait for at least a break in the price pulse trend, which right now requires a break below 814.53.

As today’s chart depicts, there is strong support at the 826-829 level. This support is provided by both Fibonacci confluence and two moving averages. Since the Z pulse is fundamentally the weakest in the entire cycle we should watch it for hints about overall market health. For instance, the inability to break below 814.53 will show that the bulls remain in firm control of this rally. A move now back above Monday’s high would show the same strength of course and could also be used to re-enter longs. Bottom Line: I don’t believe the bulls will give up without a fight!

Daily Trend Still Up

Monday saw an uptrending bar form on the cash S&P500 and we continue to move upward in a Y pulse. The ability to move cleanly through the green (long) moving average shows that the bulls are still in charge here. The trend on the daily chart is clearly up.

Price has now moved to where it is 161.8% of the previous X pulse and so short-term long positions should be protected closely. Continue to watch for a “Price Pulse (PP) Theory” sell signal: after Y completes and we fall down through the Beta – X trendline. That trendline stands at 843.46 today.

Breaking through the trendline is not a signal to take shorts. That must wait for at least a break in the price pulse trend, which right now requires a break below 814.53.

Longer-term Elliott Wave Count

The reason this blog has been slanted towards the “bearish” view on equities is perspective. I am not a short-term trader. The time frame that drives my overall view of the market is the weekly and higher time frame charts.

Today I present my Elliott Wave count on the weekly cash S&P500 from the all time high set in 2007. When viewed from this perspective my objective rules tell me that the trend is still down. In fact, those rules indicated that the trend turned “sideways to up” on 7/27/2007 and then “down” on 1/4/2008. Except for a brief “sideways to down” period from 5/23/08 – 6/27/08, the trend has been “down” since then.

However; some of my other work is now pointing to the possibility that although the downward Elliott Wave pattern is not yet complete the low for the year (not the ultimate bear market low) may have already been registered. Once the current rally (from March 6) ends the wave 4 Expanded Flat pattern from the November 2008 low will be finished. We would then need a wave 5 decline that ends the pattern from the May 2008 high. This decline would ideally end below the prior wave 3 low of 741.02 but does not have to move below the “b” wave low of 666.79.

In sum I still view this rally as the bear market variety but will be watching the next pullback very carefully to see if we can successfully retest the March low. And what of that next pullback?

On the daily chart we are at resistance right now. If we get through it he next target to watch is the 865-870 area. We will know that a serious pullback is underway if we break the Beta – X trendline shown in my previous post.