Meek Bulls and a New Demand Line

The rally attempt is on, but it certainly isn’t anything glorious. The cash S&P500 index did paint an uptrending price bar yesterday but we spent most of the session within the range of Wednesday’s bar.

The RSI (top pane of today’s chart) is still holding in the area where bull markets find support but there is still not bullish divergence with the Composite Indicator (see yesterday’s post). The Composite actually fell yesterday even with the higher price close.

What yesterday’s meek rally attempt did do is readjust the supply and demand balance as measured by the Tom DeMark lines. The Demand Line (dashed green line) is now almost horizontal and sits at 870.66. A qualified and confirmed break of this level would point to a much deeper retracement of the March – June rally.

Bottom Line: I remain bearish on equities. Overhead resistance lies at both the short (solid red) and intermediate (solid blue) moving averages. Downside targets (support) are 861-865 and then again at 845-853.

Can't Rule Out a Rally Attempt Here

It’s not a surprise but it’s now official. The swing chart of the cash S&P500 index (the orange lines on the price chart that move in “step-wise” fashion) has turned lower for the first time since the March low. The index has also confirmed the break of 886 (the 23.6% Fibonacci retracement value). This points to a move towards the 846 level (the 38.2% Fibonacci retracement value); but we may not get there directly.

Even though yesterday’s decline officially turned the swing chart bearish the RSI (top pane of today’s chart) is still holding in the area where bull markets find support. If the rally from March is truly over then a break below 38 on the RSI will come. However, the bulls shouldn’t be expected to just give up on their hard fought accomplishments. If 38 is eventually broken it may be after another rally attempt. There are timing reasons to expect some kind of a bounce here over the next few sessions.

So far the answer to the question asked in Tuesday’s posting matches my “I don’t think so …” gut feeling. It appears that the currently in force Weekly technical sell signal (RSI/Composite divergence) with TD Sell Setup may take precedence over the perfected TD Buy Setup and technical buy signal; but let’s give this a bit of time to play out. In fact, there is a possibility that the composite index (middle pane) may form a bullish divergence with the RSI if we can rally here. This would create another technical “buy” signal on the daily chart.

Bottom Line: Even with a rally attempt I remain bearish on equities here. Overhead resistance lies at both the short (solid red) and intermediate (solid blue) moving averages and then again with the TD Supply Line (dashed red line).

Another Downtrending Day

The cash S&P500 gave back all of its gains (and then some) from Monday’s session as we formed another downtrending price bar. We will confirm the slicing through of 886 (the 23.6% Fibonacci retracement value) if we can continue to move lower today without closing above 886. This would signal that a move towards the 846 level (the 38.2% Fibonacci retracement value) is in the cards.

Today’s price action will be significant for a couple of reasons. The first is that the RSI (top pane of today’s chart) is hovering in the area where bull markets find support. If the rally from March is truly over then a break below 38 on the RSI is expected. Secondly, a move below the May 15 low of 878.94 would be further confirmation that the swing chart (the orange lines on the price chart that move in “step-wise” fashion) has turned lower for the first time since the March low. The most immediate target to the downside would be the weekly intermediate and daily long moving averages now at 861.

The answer to the question asked in yesterday’s posting seems to match my “I don’t think so …” gut feeling. It appears that the currently in-force Weekly technical sell signal (RSI/Composite divergence) and TD Sell Setup may take precedence over the Daily perfected TD Buy Setup and technical buy signal; but let’s give this a bit of time to play out.

Bottom Line: I remain bearish on equities here. Short-term I expect the 861 area to be hit.

TD Buy Setup of June 26 Perfected

Yesterday’s price action traced out a downtrending price bar. We hit 886 (the 23.6% Fibonacci retracement value) before turning higher and closing at the high.

The move below 888.86 “perfects” the TD Buy Setup which was recorded on June 25. As pointed out in comments to yesterday’s post we may now see a 1-4 price bar pullback/consolidation. At this point I don’t expect the market to be able to confirm a break above the TD Demand line (down sloping dashed red line on chart) which sits at 924.97 today.

A question I have at this point is “Now that the Buy Setup has been perfected, how does the previous technical buy signal (see the Friday, June 26 posting) fit into the picture?” It is interesting that the technical signal came with an unperfected Buy Setup. Now that we have perfection is the market ready to charge higher? I don’t think so but it will be interesting to watch this play out.

Next Stop: 858?

We only managed to hit 932 (short of the start of our target range at 937) before turning sharply lower on Thursday. We opened below the TD Demand line and never looked back while forming a downtrending price bar.

A move below 888.86 would threaten to turn the swing chart (orange lines moving in “step-wise” fashion) bearish for the first time since the rally began in March. Such a move would also open the door to a move towards the long (green) moving average at 858; where the intermediate moving average lies on the weekly chart. 845-853 is the target area right below that.

Weekly Chart Review for July 5, 2009

Even though we technically had an uptrending price bar print on the weekly chart of the cash S&P we closed on the low, continuing the pullback/consolidation since the weekly TD Sell Setup was perfected on June 1. Additionally, a technical “sell” signal was given on June 19.

So far from the high we have seen a bearish price flip and a move down to the short moving average over a three week time period. A typical pullback/consolidation runs 1 to 4 price bars after a perfected signal. Since we are at the end of that time period now the question is the same as last week “Will the rally that began in March resume? Or will we have a deeper/longer correction due to the Sell Setup plus technical sell signal? “

Last weekend my answer to that question was “… we will only get confirmation that the uptrend has resumed if we can qualify and confirm a break of the current TD Supply line (downward sloping dashed red line on the price chart).” I stick by that opinion and note that the line was not broken over the past week. It sits at 949.61 this week.

In fact, since the Level 2 “Alpha” price pulse seems to have already topped (on July 1), the odds are very high that we will now break the May 15 low of 878.94. This would be a clear indication that the rally from March has run its course. The first target to the downside would be the intermediate moving average now at 858.