Weekly Chart Update for September 12, 2009

Now that the TD Sequential “sell” signal is losing its luster on the daily chart (there have been 12 price bars since it was generated and the swing chart has turned back up) the weekly comes into play as the arbiter on the current bull/bear struggle.

On the weekly chart we just printed an up trending price bar that brought us to a new high. It was also a TD Setup bar #9. What is one supposed to make of this new Setup? Well, the first thing to note is that we already have an active Setup in place from May 22. Since there can only be one active Setup at a time each trader must decide for herself which Setup to use. In my case I choose to ignore the new Setup until it is larger in price length than the older one. Thus, as stated last week, we will have to watch for a new Setup only if the market exceeds 1063.01.

Of course the question of the new Setup is important because it would imply that the bullish trend will be reinforced and continue. The same notion is being measured by the “risk”, or “you are wrong” level associated with the current TD Combo #13. That level is at 1062.74. Both this value and the 1063.01 level must be qualified and confirmed (if broken) to come into play. It is therefore important to note that based on the current weekly bar NEITHER level can be qualified if during the upcoming week -- although they can be qualified and confirmed the following week.

What does the preceding paragraph imply? A couple of things. First, we must watch the daily chart for its own TD Setup. The daily is now on Setup bar #4. It is possible that by next Friday we may be looking at a 9-13-9 “sell” pattern. Secondly, weakness next week may lead to a bearish RSI/Composite divergence on the weekly chart. It might also lead to a weekly chart close less than 1026.13 which would nullify the potential new Setup we have been discussing.

Bottom Line: The bulls are close to confirming and extending their grip on this market. I would not fight this uptrend until a definitive sell signal is generated by the TD indicators. However, if the bulls can’t clearly assert their dominance I would be very careful after the equinox.

And the Beat Goes On .....

The cash S&P500 continued to grind higher on Thursday. It appears that the Level 1 Y pulse completed at Wednesday’s high. The brief consolidation from that point until just after the open yesterday was the entire Z pulse. A new cycle has begun with alpha and has reinforced the bullish nature of the recent daily chart. However, with yesterday’s high (and close) at 1044.14 we have now essentially fulfilled the pending minimum price projections of 1042.89 (from TD Lines) and 1044.44 (RSI). What now?

As mentioned yesterday, the bull/bear fight is now best reflected (technically) by the current TD Weekly Combo and TD Daily Sequential “sell” signals. The risk levels associated with these signals; as well as the Weekly cancellation level, are what we have to watch. It will be bullish to break these levels, bearish to fail.

The nearest level (associated with the daily sequential) is now within striking distance at 1049.93. For the sequential signal to be aborted we need to break through that level in a “qualified” and confirmed manner. However, even without a break, “time” is working against the bears. As pointed out in the comments section to yesterday’s post, if there is going to be a reaction to TD Sequential it usually occurs within 12 price bars. Today is bar #12.

Meanwhile, the point where the weekly TD Combo signal is cancelled is at 1063.01. A break above this level could prolong the rally for quite some time. As we approach these levels it will also be important to watch the RSI and the Composite Index. These indicators will be silent until we get our next down close (on both the daily and weekly charts).

Bottom Line: Still bullish until after September 21 (Autumnal Equinox) at which time I will re-evaluate. Watching closely to see whether 1063.01 can be broken.

P.S. on the World Gold Index. Although we have now printed a 9 bar TD Sell Setup on the daily chart that count has not been perfected. The tricky part is that if you break much above Tuesday’s high to perfect the count the current Sequential countdown will be canceled! See last weekend’s gold post for more. As a swing/longer-term investor I still have no incentive to be short this market here.

Tension: Price Versus Time

With another up trending day on Wednesday, the cash S&P500 has shown that it has the strength for this rally to last until at least the equinox.
The current Level 1 Price Pulse (Y) up from the September 2 low has so far refused to yield; indicating that the next pullback will hold above 991.97. The higher level patterns continue to insist that the rally from March must continue until at least September 21. That has been my working premise for quite some time now -- the rally lasts until at LEAST the September 21 date. The tension between reaching that *time* at a new rally high and the DeMark weekly and daily “sell” signals is growing.

Besides the price pulses, another indicator of short-term strength is the fact that the weekly TD Supply Line has now been broken and qualified (see last weekly chart posting). Additionally, we are still operating on the daily chart with minimum price projections of 1042.89 (from TD Lines) and 1044.44 (RSI); implying a new high and still further to go to the upside. So far we have reached 1036.34, just 3.13 points from a new high.

As I mentioned, attempting to “cap” the rally are the current TD Weekly Combo and TD Daily Sequential signals. The risk levels as well as the Weekly cancellation level are what we have to watch. The first, associated with the daily sequential, is at 1049.93. The point where the weekly TD Combo signal is cancelled is 1063.01. As we approach these levels it will be essential to watch the technical interplay between price, the RSI and the Composite Index. Most trading days are interesting … the next seven will be very much so.

A Bit of Weakness?

The cash S&P500 had a bullish day yesterday as it printed an up trending price bar on its daily chart. We are now less than six points away from a new closing high. We are currently working with minimum price projections of 1042.89 (from TD Lines) and 1044.44 (RSI); implying a new high. But nothing says we have to get to that new high in a straight line. In fact, there are two reasons to expect a bit of weakness over the next few sessions.

The current Level 1 Price Pulse (Y) is due to reverse now and a TD Differential down arrow was produced at the close yesterday. Z (which follows Y) will put downward pressure on prices for 1-3 days. However, the driver for prices right now are the higher level pulses. On Level 2 the pattern currently predicts that a new high will be reached prior to the last low (991.97) being broken. The Level 4 pattern says that the new high can’t come before September 21.

Post Labor Day Action Commences Now!

The cash S&P500 ended strongly last week with an up trending day that punched through the down sloping TD Supply Line and reached the short moving average.

The futures are strong (+11) early this morning (5:00am NY time) as the bulls look to overcome the recent pullback from August 28 to September 2. A minor sign of strength to start the week would be an open today above 1014.90, as this would invalidate the downside break of the TD supply line on the weekly chart. Such an open, combined with a move above Friday’s high (1016.48) would confirm the upside break of the demand line on the daily chart. This would give a price projection of 1042.89; implying a new high.

Here is the latest on the potentially bullish indications I have been chatting about over the last few days:

1) The RSI made low last 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 quite close to the demand line projection above. Keep in mind that both values are below the TD Sequential risk level of 1049.93.
2) The Composite index is in the same situation as the RSI.
3) Interestingly, the anticipated TD POQ buy signal was not triggered on the REI last Friday due to a strong open. At this point I don’t see this as a sign the budding rally will fail, rather I think it hints that a dip will come rather quickly this week after some strength to open the week.
4) On the recent pullback (Aug. 28 - Sep. 2) price opened above the 38.2% Fibonacci retracement level and then traded through it, the 50% and 61.8% retracement levels all in one day (Sep. 1). This is often a sign of near-term price exhaustion.

The four points above point to a continuation of the rally from last Wednesday’s low but hint that we may see a quick pullback after some opening strength and before we actually reach new highs.

A Cursory Look at The World Gold Index

On the longer time frame charts (not shown) it looks like gold is closer to an ultimate high (in the rally from the 1999 low) than a low, but will have to wait until sometime in 2010 for "the" top.

On the Weekly chart (shown) we have been working on a TD Sequential Sell signal for quite a long time now. The TD Sell Setup was completed on January 16, 2009 and we have just now (September 4, 2009) printed bar #13 of countdown.

While countdown was proceeding, a bearish divergence between the RSI and Composite Index in late February of 2009 led to a pullback. That was followed by a positive reversal signal in these same indicators in April 2009. The associated minimum price objective tied to that positive reversal is 1020.37. So far we have reached 998.

Now that we've printed countdown bar #13 the first question revolves around taking a short position. Should I? And if so, where do I make my entry? The most aggressive action would be to go short now (on the close of bar 13). I would not advise this as there is no confirming RSI/Composite signal and we have not yet fulfilled the already mentioned minimum price objective off of the April low. Let's turn to the daily chart for help.

As of September 4, 2009 we are currently sitting at TD Sequential countdown bar #11. During the coming week it is possible that countdown will complete. If so we will have time-frame confirmation between the daily and weekly. However … we will also have to watch for the possibility that countdown gets canceled on this time frame. That would occur if TD Setup (currently on bar #6) reaches nine bars (or more) and exceeds 1017.

Conclusion: Although we have reached TD Sequential Countdown bar #13 on the weekly chart, it is a bit premature to short the gold market here. Let’s see how the coming week unfolds. Longer-term, if a significant pullback does unfold here it might be a final opportunity for traders to get long the precious yellow.

I will try to update this analysis periodically.