All Eyes on Jobs Report

The cash S&P500 formed an inside price bar on Thursday and continued to hold the 930 area but remains in a precarious position (as far as the bulls are concerned). The low at 923.85 on Wednesday is most likely a Level 1 PRP and the end of the Beta Pulse. A failure to move above 949.38 before breaking 923.85 would add to the bearishness of the technicals described yesterday. Today’s close (weekly chart) continues to be quite important.

A new TD Demand Line is in play. A move below 941.98 would be a qualified break of this line and project to a price of 907.38. The overhead TD Supply Line would not be qualified today.

It is interesting that the Demand Line is so close to where we closed yesterday; almost like it lined up that way to immediately come into play when the all important jobs report is released this morning. Bottom Line: No change in my thinking. We are nearing the end of the rally from March. A failure to close higher this week would lead to a multi-week corrective pullback. A higher close this week points to the rally extending towards the 970 area where we have to watch for the start of a much deeper multi-week corrective pullback.

Delicately Poised

The cash S&P500 formed a downtrending price bar on Wednesday, retesting the prior 930 resistance area to see whether it has become support. So far it has held. I continue to look for a 1 to 3 day pullback (today would be day 2) followed by another thrust towards 970. Of major interest will be whether the weekly price bar closes lower. That weekly close is even more important now …

Two significant developments took place yesterday that demand attention. First, the Relative Strength Index flashed a bearish divergence with price (see upper pane of daily chart). Secondly, the 949 high is in Opposition to the 666.79 low recorded at the start of this rally in March and 950 is Square to March 6. This price action is a clear caution to think about protecting any profits generated by the rally from the March low and will force me to change my short-term view if we can not close higher on a weekly basis.

With the market poised at such a balance point the TD Supply (949.34) and Demand (902.95) Lines (dashed red and green lines on the chart) assume increased importance today. A move through either one would be qualified.

Bottom Line: I think we are nearing the end of the rally from March. A failure to close higher this week would lead to a multi-week corrective pullback. A higher close this week points to the rally extending to the 970 area where we have to watch for the start of a much deeper multi-week corrective pullback.

Pullback at Hand?

The breakout from the contracting triangle has stalled at 949. However, yesterday did produce an uptrending price bar and I think that indicates that the current run (from the 5/28 low) will continue into next week after a pullback. The uptrending price bar just mentioned was number eight of a possible TD Sequential “sell”.

And so it now appears that we will pullback and “retest” the prior 930 resistance area to see whether it has become support. My roadmap; so to speak, is for a 1 to 3 day pullback followed by another thrust towards 970. Of major interest will be whether the weekly price bar closes lower.

Bullish at Least Into Next Week?

The breakout from the contracting triangle continues. The uptrending price bar formed Monday was number seven of a possible TD Sequential “sell” and with 13 bars required at a minimum before the signal, we may have a week or more of upside still to come.

On the daily chart we must now look to see how the market acts as it moves towards the next upside target in the 970’s. Since the weekly TD Sell setup has now been perfected it is prudent to begin a closer watch of the technical indicators. For me that means the RSI, Composite Index and Derivative Oscillator, as I find them a nice complement to the price exhaustion work of Tom DeMark.

It also means watching the price pulses (shown today) which are all bullish as of this morning. At the lowest (BLUE) level we have just started a new cycle and are moving upward in Alpha. A sell signal can only be generated on this level right now with a move back below 887.60. At the GREEN level the market showed its bullish intentions when the recent Beta pulse failed to go below 878.94. We are now in a Delta pulse on both the GREEN and RED levels. A sell signal can only be generated on these levels right now with a move back below 879.61. Since I don’t expect outright sell signals here I need to be attentive to “indications” of weakness in the patterns combined with the technical indicators mentioned above. Let us see what today brings.

I am not at all satisfied with the mechanical (experimental) trading system I was playing with and so will go back to the lab bench with it.

Triangle Thrust Underway

The consolidation in the cash S&P 500 since May 8 can be described as a contracting triangle pattern (see Friday’s post) and was in response to the strong overhead resistance at 930 as shown in the monthly post on Saturday. Is this triangle part of a topping action or would we break out to the upside? The weekly chart (see yesterday’s post) argues for higher prices and it does appear as though price began a breakout from the triangle just before the close on Friday.

Friday’s uptrending price bar was number six of a possible TD Sequential “sell” signal. With 13 bars required at a minimum before the signal, we may have well over a week left of rising prices. After the failure to move below 879.61 last week (indicating that the Z pulse had already completed with bullish implications for the immediate future) we had the subsequent Alpha pulse break the Delta – Y trendline on Friday generating a price pulse “buy” signal. The first upside level to watch is the previous 930.17 high. I wouldn’t be surprised if we test this level and drop back yet again before finally pushing through. One reason to think we won’t push cleanly through 930 on the first attempt this week is that the TD Supply line was not qualified when broken on Friday.

Many times a good price target after breaking out of a triangle is a Fibonacci percentage of the triangle’s “b” wave. Note the 161.8% level is near the backside of the weekly TD Demand line. This makes 962-964 an area worth watching *if* we get through 930.

The mechanical (experimental) trade position remains short from 897.34 (5/12) with a stop & reverse at 924.61.

Weekly Review - May 31

It was an “inside” week to close the month of May – the weekly action screaming emphatically that it is drawing a line after its vigorous rally from the March low. The first item of interest on the chart is the TD Combo “buy” signal and the perfected TD Buy Setup at the March low. These bullish indications were confirmed by bullish divergence with price in both the RSI and Composite indicators (top and middle pane respectively). So what was viewed as a countertrend rally on the monthly chart was certainly a buying opportunity when viewed through the weekly prism.

As noted in yesterday’s post the market has reacted to the 930 target area by moving sideways for three straight weeks. Can we see any signs of a reversal here or is just a consolidation before moving to the next higher target? One applicable item to note has been discussed in this blog over the past week: The need for the weekly chart to move above 930.17 in order to “perfect” the TD Sell Setup recorded the week of May 22. Glancing at the technical indicators it does appear that we *may* get a bearish divergence between the RSI and Composite if we were to renew the rally; but that is only a possibility at this point. We shouldn’t even think about turning bearish on this market (according to the weekly chart) until we surpass 930.17.

In the coming week the current TD Supply Line can only be qualified by an open above 926.73 -- and this is unlikely. After dropping below the TD Demand Line the week of May 15 there has been no follow-through to the downside, indicating that there has not been a shift in demand. In fact, the supply and demand lines are equal at 927 – no wonder we have been trading sideways at this level! We should also take note that the Demand line stands at 964 next week. This is close enough to our 971 monthly target where we will have to watch for an instance of price coming back to “kiss” the bottom of the broken trendline before selling off.

Bottom Line: Although the weekly chart is not yet calling for a reversal of the rally from the March lows it is suggesting we pay close attention. Over the coming week we need to watch for a move above 930.17 and see how the market reacts to it.

Aside: TD D-Wave says the March low was the bottom of wave 3 or C from the October 2007 high.