At a Tricky, Important Juncture

With the cash S&P500 surpassing the 1006-1007 resistance area late yesterday we must be alert to the resumption of the bull run -- even though the correction from August 7 resulted in only the mildest of pullbacks.

We hit the TD Demand Line yesterday (down sloping dashed red line) and it will be qualified on an open above 1005.85 (we closed at 1007.37). If later confirmed the break of that line projects to 1038.05 -- the rally would be back on! However; what makes this very tricky is that any move above 1013.14 today would put the market in a position where a TD Sequential 13 could be hit on the daily chart early next week. At that point two distinctly differing results are possible: the rally is renewed and we continue to rally to at least the Equinox without returning to 978.51 (August 17 low) OR we fall very sharply next week and then rally.

Bottom Line: A breakout and possible violent rally should be assumed on a break above 1013.14 today -- but tight trailing stops should be employed in case this is just a head fake before a sharp sell-off next week. ‘Gotta call ‘em like I sees ‘em!

Watching For the End of This Correction

The market formed an up trending price bar on the daily cash S&P500 chart yesterday. The rally, on lower volume than Tuesday, reached the short moving average before pulling back slightly. As expected the price action has turned the swing chart (shown by the solid orange line) down for the first time since the July 8 low.

With the rally now spanning two sessions and the futures up 3.7 points at 7:02am, we are forced to ask “Is the correction over”? I don’t think so and will be watching for strong resistance in the 1006 - 1007 range with immediate downside price targets at 969 and then 961. As I am expecting one more rally phase into the Autumn it would not be worthwhile to pin too much on the bearish side. Ideally (over the coming week or so) we fail to clear 1013 and then hit the 961 level next week. But asking for the ideal is usually too much …

Inside Day

The market paused yesterday in the form of an “inside” day. This is where the price bar on the chart contains a high less than the previous session and a low greater than the previous session. For today, any close below 1012.73 will turn the swing chart (shown by the solid orange line) down for the first time since the July 8 low. This has no other significance than to emphasize the importance of this correction in relation to past action. Another qualitative measure is TD D-Wave. Measuring from the July 8 low, the August 7 high would be labeled as Wave 1 or A . I prefer the “A” label since I believe a three wave swing is underway. Per the way I use D-Wave, the current “B” wave correction will be over when we get a close greater than all previous 20 closes.

The inside day yesterday has allowed the Demand Line to adjust. Pending a break and confirmation of this new line I will keep immediate price targets for the decline at 969 and then 961.

August Correction is Here

Another down trending price bar was printed on the daily chart of the cash S&P500 on Monday. We gapped down at the open below both the TD Demand line and the short moving average. This price action confirmed the TD Demand Line break and projects to a 969.43 price.

Bottom Line: The expected August correction associated with the Level 3 Beta pulse (see the July 25 post) is underway. At this time I expect the decline to complete by the end of the month. The next downside target is 961 but there is no requirement to get there immediately. If a bounce develops over the next day or so it would push the bottom into next week.

Level 3 Beta Pulse Underway?

It was a down trending day in the cash S&P500 on Friday. During the session we broke, but then closed above, both the TD Demand line and the short moving average. But can we hold for long?

As noted in the weekly review, there are key levels just above the market: The weekly TD supply line is at 1006.12 and the 38.2% Fibonacci retracement level is at 1014.14. Since breaking these levels imply that there is a good chance the market will be able to hold them by the end of the week, the price action early this week will set the tone for how we finish.

Last Thursday the market made its highest closing high in this rally. Neither the RSI (shown on today’s chart in the upper pane), Composite Index or Derivative Oscillator (middle pane of chart) confirmed. Momentum has been failing on the daily chart over the past week or so and has been accompanied by a TD Combo 13 count.

Bottom Line: A failure to break above 1006.12 today would strengthen my belief that the pullback associated with the Level 3 Beta pulse (see the July 25 post) is underway. Initial downside targets are 983 and then 961.

Weekly Chart Update for August 16, 2009

After four consecutive up trending weeks we finally had a pause (via an “inside” week) in the cash S&P500. Going into the week I reasoned that “Without an open above 1014.14 we shouldn’t expect to close Friday above that level. This implies a flat to down week”. This sentence sums up the just concluded week quite nicely.

The inside week has allowed the supply side of the market to readjust. The new TD supply line (downward sloping red dashed line) is at 1006.12 over the coming week and will be qualified if broken. Additionally, the index is now in a position to qualify a break of the Fibonacci 38.2% retracement (horizontal blue dashed line) at 1014.14. Recall that qualification implies a good chance that the market will be able to hold these levels by the end of the week.

On the negative side …. The weekly RSI turned down this week after posting its highest value since the March low. Meanwhile the composite index did not make a new high. This sets up a bearish divergence and is a “sell” signal. However, this signal comes without a DeMark signal. TD Combo (dark red) is furthest along and stands at eleven. Even with the aggressive version of TD Combo it takes a minimum of thirteen bars to generate a signal. The lack of a DeMark signal also applies to TD REI (even though it has now poked above the .4 level) since the current price bar contains a lower close.
To me, the lack of a DeMark signal implies that even if we have started a correction it does not mean that the rally from March is over.

I will combine the above information with the latest daily chart data in tomorrow’s posting.