Weekly Chart Update for September 4, 2009

In the first week after a completed TD Combo #13 the weekly chart of the cash S&P500 has printed a down trending price bar. The price action last week broke and qualified the TD Demand line which gives us a downside price objective of 972.14 *if* the break is confirmed this coming week. An open next Tuesday above 1014.90 is one way we can get fail to confirm. The other would be to not make a new low. In either of these two cases the momentum would switch to the bull side, and we would then have to watch to see if we break 1029.13 (TD Supply Line). If we do we will have qualified the supply line and odds will then be quite high that a new price high is in the cards.

Can we reconcile a move to new highs even though we recently completed a TD Combo “sell“ signal? Yes. First off, recall that the risk level associated with that signal is at 1062.74 (shown as a bright red horizontal line on the chart). The “sell” signal remains in effect unless we get a qualified and confirmed break of this level. With that in mind it is interesting to see that if next week prints a TD Setup bar #9 we can also lose our Combo signal if the market exceeds 1063.01. Notice how the two techniques seem to reinforce each other by being so close. My point here is that as long as we don’t exceed 1063.01 next week we must still be wary of an impending trend change from bullish to bearish.

Bottom Line: The weekly chart took on a bearish tone when we broke 1014.91 last week. However, I did not expect the mid-August low of 978 to be broken and I still don‘t without a new high that is recorded on or after September 21. However, if the bulls want to ensure that the rally has continued staying power they need to break 1063.01 before “time” runs out. After the equinox I would be very careful; particularly since this past week just produced another RSI-Composite index bearish divergence.

Pullback Completed? That is the Question.

The S&P500 formed an up trending price bar Wednesday as it was able to maintain contact with the medium moving average (solid blue line). The current pullback has done enough to turn the swing chart (shown by the solid orange line) down but the trend is still up until 978.51 is broken.

If my roadmap is to hold (I.e. we get a new high on or after the equinox) I think we need to hold that 978 mark as this is a key Level 2 Price Pulse point. Can the bullish camp hold? Yesterday was a start in that direction. Let’s update the “encouraging” potentially bullish indications I have been chatting about over the last two days.

1) The RSI made low Wednesday below its level of August 17th while price did not. This is a positive reversal formation and has a price projection that goes with it: 1044.44. Note this is a minimum projection, but it is below the TD Sequential risk level of 1049.93.
2) The Composite index is in the same situation as the RSI.
3) The REI has returned to below the -.40 area and at this point can be characterized as mildly oversold. A TD POQ buy signal would be triggered today if we open at or below 1003.43 and then subsequently exceed that level.
4) Fibonacci retracement of the most recent price swing (up from the August 17 low as defined by the swing chart). The market opened above the 38.2% level and then traded through it, the 50% and 61.8% retracement levels. This is often a sign of near-term price exhaustion.

The four points above are now leaning towards a rally.

As far as price pulse theory is concerned: If yesterday’s low was in fact the end of the Level 2 “x” pulse then the odds favor a move to new highs from here. However that is not yet a provable premise.

Finally …. Let’s take a look at the current supply and demand lines. We are in the position today where either line would be qualified if broken.

Bottom Line: The correction may already be over but there are indicators to help us judge whether taking a bullish stand is the best play. The call for a rally here would be in question if we fail to get an REI signal (see point 3 above) or if we break the demand line (994.21).

P.S. Of course the wild card is the jobs report to be released at 8:30 am EDT.

Updating the Indicators; A P.S. on Gold

In terms of absolute price movement it was a much quieter day on Wednesday as the cash S&P500 formed a down trending price bar.

If my roadmap is to hold (I.e. we get a new high on or after the equinox) I think we need to hold the 978 level as this is a key Level 2 Price Pulse level. Can the bullish camp hold this level? Let’s update the “encouraging” potentially bullish indications I listed in yesterday’s post.

1) The RSI is in a downtrend and below its level of August 17th while price is still above its August 17th level. Still true and still a possible positive reversal indication.
2) The Composite index is below its level of August 17th while the RSI is not. This is no longer the case. The composite index fell quickly yesterday and at best is now in a position to also form a possible positive reversal.
3) The REI was above .40 for six sessions from Aug. 24 to 31. This is mildly overbought and has preceded the current weakness. The oscillator was just recently below -.40 and was mildly oversold. A TD POQ buy signal is pending but first requires an up close day. As an aside …. There seems to be an error in Jason Perl’s book on this indicator. For a buy signal he says there must be a lower close than the previous price bar. I think (from reading other material) that is backwards. Comments on this welcomed and appreciated!
4) Fibonacci retracement of the most recent price swing (up from the August 17 low as defined by the swing chart). The market opened above the 38.2% level and then traded through it, the 50% and 61.8% retracement levels. This is often a sign of near-term price exhaustion. Still possible; particularly since one can argue that the “pace” of selling diminished yesterday.

The four points above are still viable if less encouraging than yesterday. Again, these are only indicators of a possible upside reversal. At the lowest level (Level 1) the downward moving “x” pulse is about to end. At Level 2 we are now entering the time period where we should look for the “x” pulse there to end. As a reader points out in a comment yesterday, TD Diff indicates that yesterday stands a better chance of being a short-term low than Tuesday’s low did. It looks like I need to explore using TD Diff in conjunction with Level 1 price pulses.

P.S. It looks like the World Gold Index is trying to form a TD Sequential "sell" countdown bar #13 on its weekly chart. More on this at the weekend if it develops.

Bears Grab Control

After an initial upward thrust at the open the cash S&P500 reversed course and traded sharply lower, forming an “outside” price bar on the daily chart Tuesday. Thus the bear camp has successfully challenged and broken through the 1014.91 level which puts them firmly in control at this point. We ended the day just above the medium moving average (solid blue line on the chart).

If my roadmap is to hold (I.e. we get a new high on or after the equinox) I think we need to hold the 978 level as this is a key Level 2 Price Pulse level. Can the bullish camp hold this level? There are signs that it is possible; but only signs at this point. Most notable are the oscillators and today I present the RSI, Composite and TD REI (in that order from top to bottom) on the chart above the price bars.

I am watching these points:
1) The RSI is in a downtrend and below its level of August 17th while price is still above its August 17th level. Possible positive reversal indication.
2) The Composite index is below its level of August 17th while the RSI is not. Possible bullish divergence indication.
3) The REI was above .40 for six sessions from Aug. 24 to 31. This is mildly overbought and has preceded the current weakness. The oscillator is now below -.40 and is mildly oversold. A TD POQ buy signal would come today if we trade above 1025.21.
4) Fibonacci retracement of the most recent price swing (up from the August 17 low as defined by the swing chart). The market opened above the 38.2% level and then traded through it, the 50% and 61.8% retracement levels. This is often a sign of near-term price exhaustion.

The four points above are only indicators of a possible upside reversal. None of them have occurred yet. Until they do I remain short-term bearish. And keep in mind that Friday is the monthly jobs report.

Daily and Monthly Chart Comments

The cash S&P500 formed a down trending price bar on the daily chart Monday. The index opened below the TD Demand Line and then went below last Thursday‘s low; putting the bears in position to challenge the 1014.91 level. We actually touched 1014 yesterday but the bulls stepped in and pushed the market to 1020. However; by closing at 1020.62 we have had the “price flip” needed to help “confirm” the recently completed TD Sequential countdown.

Enough on the daily chart. Let’s switch gears and look at the new monthly (chart shown), where we had an up trending price bar in August. It was stated in the monthly report for July that “The next target up is 1012-1028“. We hit that and closed the month at 1020.62. The rally from the March low has now gone on long enough (in time) that the monthly swing chart (depicted by the orange lines) has turned up for the first time since the bear market began in 2007. This rally came after the monthly chart perfected its TD Buy Setup in February. Since counter-trend rallies usually only last about 4 price bars in time we must watch for the resumption of the downtrend.

There are two good indicators to watch to try and catch the start of a renewed downtrend. The first is the TD Demand Line (upward sloping dashed green line) which now sits at 970.59. A break below that level would be qualified -- a strong indication that the rally is failing. Additionally the RSI indicator is showing a potential negative reversal. A turn down in this oscillator would trigger a “sell” signal from this tool.

Bottom Line: Although we can’t claim the rally from the March low is complete, the monthly chart now contains the parameters to watch for to signal the end of that bull move. A break of 970.59 and a turn down in the RSI.

Still Short Term Bearish

After posting a completed TD Sequential Countdown last Tuesday the cash S&P500 has basically gone sideways. The rule of thumb is to watch for a reaction (in this case a decline) to occur within 12 bars of countdown completion - which in this case means September 11. On a weekly basis (see yesterday’s post) I am watching 1062.74 (bullish) and 1014.91 (bearish) as key levels. Since; based on the daily chart, I describe myself as “Short-term bearish“, I think we visit 1014.91 before 1062.74.

One of the events to watch for after a completed sequential countdown is a “price flip”. This is construed as an indication that price is in fact reversing. For today we need a close less than 1028 to “flip“ price downwards. In the process of doing that the bears will have to face the current TD Demand Line (upward sloping dashed green line on chart) at 1025.62. Interestingly, a move through that level would not be qualified today and so it appears that it will be a battle just to get the close below 1028 today. In the most optimistic case I think the bears would be elated if they can hit the short moving average (bright solid red line) at about Thursday’s low of 1016.

Bottom Line: Watching for a down trending day today that closes below 1028 and puts the bears in a position to challenge the 1014.91 level. I remain Short-term bearish but then expect a resumption of the rally that brings us to new highs and lasts at least until the Equinox. I would re-think my short term bearish view on a break of 1049.93.

Weekly Chart Update for August 30, 2009

The new weekly chart of the cash S&P500 shows an up trending price bar that is labeled as TD Combo #13. This completes the Combo count and demands our attention. Before we do that let’s update a couple of other price tidbits mentioned in last weekend‘s post.

The price action over the last five days has been enough to confirm the recent break of both the TD supply line (downward sloping red dashed line) and 38.2% Fibonacci retracement (horizontal blue dashed line) at 1014.14. These breaks 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 while the break of the Fib retracement line 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 (solid green line now at 1090) is falling towards this level and should coincide with it in a couple more weeks.

Can we reconcile higher price targets with the just completed TD Combo? Of course; but that implies that the Combo “fails“ and does not result in a price reversal. The first item to note is the “risk“ level where the Combo signal may be proved wrong. This stands at 1062.74 and is shown as a bright red horizontal line on the chart. A qualified and confirmed break of this level would certainly allow for our higher targets. Next note that after a Combo signal there are numerous methods for taking an actual “short“ position. Going short on the close of bar #13 is very aggressive and therefore most risky. Waiting for a “price flip” (for September 4 that would be a close below 1010.48) is quite a conservative play. In-between there are numerous DeMark methodologies.

One I like is the use of TD Lines. The price action over the past week has readjusted the TD Demand Line (upward sloping green line that will be at 1014.91 this coming week). Interestingly, that level coincides with the short moving average and 38.2% Fib retracement on the daily chart.

Bottom Line: I would not consider the weekly chart bearish unless we break 1014.91 over the coming week. Even then I would not expect the mid-August low of 978 to be broken. I would view a break of 1014.91 as representing a correction within the ongoing bull run. After any such correction we would rally to new highs -- but then we may face a much more important completed TD Sequential Countdown (we are on bar #9 of 13 now).