Bull/Bear Battle Continues

After declining to just shy of the 38.2% retracement level the cash S&P500 reversed course and ended higher for the day. We finished the session with an “outside” price bar on the daily chart and the configuration one of our readers has been looking for over the past two days. As he/she said once we exceeded Wednesday’s high “And there it is - higher high -- should be interesting -- now we need to watch for a price flip and confirmation of downtrend with td ref closes”. The price flip mentioned would occur today on a close below 1025.57 and would go a long way to “confirm” the recently completed TD Sequential countdown.

Watching the price pulses, it was clear that going into yesterday’s session we were in a downward moving Beta pulse -- and so I thought that yesterday and today would be critical to the bear case. The longer in time that Beta lasted the higher the odds that the next upward pulse, Delta, will fail to make a new high. Well there is now a good chance that Beta completed at yesterday’s low and that Delta is underway (there is no foolproof way I know of to be certain). If Delta fails to make a new high then we know that the trend has reversed to down and the bear case remains intact. But what if Delta makes a new high here?

The first thing I note is that the TD Demand Line (at 1037.66) aligns with the level we are watching to see if Delta breaks. Exceeding that level today will not “qualify” the break. Furthermore, a move to new highs here would undoubtedly leave all of the momentum indicators trailing (bearishly diverging). Conclusion: Even a push above 1037.75 in a Delta pulse will leave the market vulnerable to further downside action over the next week or so. In this scenario one way to measure the risk of being wrong (that is, that the market will continue higher without coming back) is through the TD Risk calculations. As I calculate it, the level associated with the just completed sequential is 1049.93. I would let a break of that level end the bear hopes here.

Bottom Line: Short-term bearish; but expecting a resumption of the rally that lasts at least until the Equinox. I would re-think my short term bearish view on a break of 1049.93.

New TD Demand Line

First off I would like to thank those folks who have been commenting on the blog lately. It is a pleasure to have their inputs and ideas since it is; in my opinion, still rather difficult to find good “DeMark” work on the web. Thanks!

As for the daily cash S&P500 I have to laugh (LOL). After all the bluster and all my frantic writing the index has done, overall, nothing this week. Yes, yesterday was a down trending bar - the first since August 17 - but we didn’t make much downside progress.

We did open above 1026.61 and then trade below that level, and so the TD REI POQ triggered a “sell”. We are also operating off an RSI “sell” signal and a completed TD Sequential countdown. Indeed; I now think that the Level 1 Alpha pulse that moved the market upward from the August 17 low is certainly done. Surely we are now in the downward moving Beta pulse -- and so I think that today and tomorrow are critical to the bear case. The longer in time that Beta lasts the higher the odds that the next upward pulse, Delta, will fail to make a new high. Of course that is the definition of a downtrend - lower highs.

I still think the odds of a decline below the 978 level here are minimal at best. The best part of yesterday’s price action is that it allowed the supply and demand balance to readjust. The new TD Supply Line is essentially horizontal at Tuesday’s 1037.75 high. I would let a break of that level end the bear hopes here. Otherwise, a close today below 1026.13 would cause a four day “price flip” and increase the downward pressure. My first downside target is around 1009 where the short moving average is.

Bottom Line: I remain short-term bearish here but still expect an eventual resumption of the rally that takes us past the Equinox in time. I would re-think my short term bearish view on a break of the TD supply line.

TD Sequential Countdown Complete

We have most certainly reached an interesting point in the movements of the daily cash S&P500. Two days of increased volatility have left us less than 2 points from where we started. On both Monday and Tuesday we reached for the Supply Line break projection of 1038, hitting 1037.75. At the same time we remember that the risk level associated with the printing of TD Combo 13 on August 7 was 1038.92. On top of that … the cash S&P500 completed a TD Sequential Countdown at the close yesterday! What does it all mean? That is quite a question! Let's start by reviewing the Supply Line and TD Combo action.

The TD Supply Line price projection was also 150% of the August 7 - 17 correction. However; hitting these projections does not necessarily mean we can’t go higher. In fact, the weekly chart (see last Sunday’s post) has higher bullish targets.

The TD Combo risk level is a stop-loss level from a trade that would have been taken short on the signal of August 7. In my mind that signal led to the August 7-17 correction and is over. Please note that the swing chart (as indicated by the solid orange lines) has again turned higher and is at a new high for the rally. To me this indicates the downside price action associated with the TD Combo signal is over, regardless of whether we’ve hit the stop-loss level or not.

That brings us to the present and our completed TD Sequential which has a risk level associated with it of 1049.93. At the same it should be noted that the RSI is still not confirming this rally and that TD REI POQ will trigger a “sell” if the cash opens above 1026.21 today and then trades below that level. This would seem like a sound strategy at this point for the daily chart.

So do I look for a decline here? Yes. How deep of a decline? I turn to the price pulses for guidance. Without a sharp sell off over the past two days I now think the odds of a decline below the 978 level here are minimal at best. Furthermore, any decline from here would be followed by a move to new highs. Key point: A decline down to 978 is possible here.

My initial downside target would be the four day “price flip” of 1007.37. This is also in the area where the short moving average is. I would expect the Medium moving average (solid dark blue line now at 979 and rising) to contain the decline.

Bottom Line: Weakness here (limited to a decline to the 978 level) would be followed by a move to new highs as the overall rally continues (in time) to at least the Equinox.

Has the Level 1 Alpha Pulse Peaked?

After starting strongly and peaking at 1036 (Demand Line break projection was 1038) the cash S&P500 moved lower the rest of the day and finished slightly lower. However the price action is still classified as an up trending price bar on the chart.

Yesterday’s reversal is a strong indication that the upward moving Level 1 alpha price pulse mentioned yesterday is complete and that the downward moving beta pulse has begun. With Beta comes the danger of a sharp decline that quickly puts the market back below 978. I think the odds of this are small but worth noting (a good reason for tight trailing stops). Adding to this risk was another RSI “sell” signal (see top pane of chart) at the close yesterday. The new closing high on Friday was only accompanied by yet another lower RSI high.

My initial downside target would be the short moving average at about 1005; where the Fib retracement also lies. Finally, it is also interesting to note how close we are getting to a completed TD Sequential Countdown. More on that in a later post.

Bottom Line: Weakness here (even a decline below 978) would be followed by a move to new highs as the overall rally continues (in time) to at least the Equinox.

A Short-term Concern

The cash S&P500 broke out of its recent consolidation on Friday. We opened above the TD Demand Line and never looked back. Confirmation (a move above Friday’s high) projects to 1038.05. Combined with a bullish looking weekly chart (yesterday’s post) it looks like the rally is back on! Right? Well there is some concern over the next few days …

The currently upward moving Level 1 (smallest scale) price pulse (alpha) is due to peak and will be followed by a downward moving beta pulse this week. With Beta comes the danger of a sharp decline that quickly puts the market back below 978. I think the odds of this are small but worth noting (a good reason for tight trailing stops). However; even such a decline would be followed by a move to new highs as the overall rally continues (in time) to at least the Equinox.

Weekly Chart Update for August 23, 2009

After four consecutive up trending weeks we finally had a pause (via an “inside” week) in the cash S&P500 during the week ending August 16. That pause in the rally continued early this week with a mild price decline but was followed by a strong push higher during the end of the week. The result was an “outside” week where the low is lower than the previous low and the high greater than the previous high.

The rally over the last half of the week exceeded (and qualified) the TD supply line (downward sloping red dashed line) which was at 1006.12. Additionally, the index has now also qualified the break of the 38.2% Fibonacci retracement (horizontal blue dashed line) at 1014.14. If these breaks are confirmed over the coming week they imply that the bull move from the March low is continuing. The price projection from the broken TD supply line points to a target hundreds of points higher! A confirmation of the Fib retracement break implies a move to at least 1122; the 50% Fib level.

Lower, more immediate targets also exist. The next TD Trend Factor target (based on the July 10 low) is at 1079.38. The Long-term moving average (green line now at 1095) is falling towards this level .

Of course, it takes two sides to make a market. On the negative side …. The only bearish concern on the weekly chart is the “closeness” of a TD Combo (dark red) 13. We have now reached 12 bars. But 13 is at least a week away and we can worry about its implications if; and when, it comes.

Bottom Line: Last weekend I stated “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.” In fact, it appears that all we got was a minor pullback and the bigger bull move is back on with potential upside targets as described above. Over the very short term we still face some downside risk and I will discuss that tomorrow.