Jobs Report Day! Sequential 13 Day?

In no way would I be long here. That is what I said yesterday and I still mean it. I am not a day or short-term trader and so yesterday’s strong rally did not cause me angst. I remain neutral with an eye towards taking a bearish view.

Yesterday’s up trending price bar on the daily chart of the cash S&P500 made it through the two resistance levels I had been watching. It also was bar #12 in the TD Sequential Countdown process. Since we had a higher high yesterday the break of the daily TD Supply line (down sloping red dashed line) was confirmed with a price target of 1068.03 which we almost made yesterday.

No doubt today will be interesting; particularly with the much anticipated jobs report due out this morning. One item I am watching with interest is the Dollar Index. It has been moving inverse to the s&p’s since March. Now the Dollar index is on a Sequential bar #12 buy countdown while the equity market is on a bar #12 sell countdown! Coincidence? For today, to make their respective bar #13, the dollar index must trade below 75.50 (but not 74.9) and close below 76.07. For the cash S&P500 we need to trade above 1073.19 and close above 1061.00.

Bottom Line: I have been short-term neutral since October 9th and remain that way now; Waiting to see if we get a sequential signal here. I will not consider going to a long-term bearish stance unless 1019.95 is violated. 1019.95 comes from the monthly chart discussion posted last Saturday. It showed that if 1019.95 is broken the bears will have the upper hand with an initial downside objective between 910 and 940.

Has the Bounce Ended With A Doji?

It was a nice strong day until the last hour or so. The sell-off that ensued still left us with an up trending day on the daily chart of the cash S&P500, but it was not convincing. Candlestick-wise it looks like we had a Doji star with a long upper shadow. These are bearish candles. The market reached for resistance at the 1064-66 (daily medium and short moving averages) level but only made it to 1061. We then closed back below the long moving average on the weekly chart again (now at 1053.82).

Unless we get a higher high today the break of the daily TD Supply line was not qualified yesterday, and so our TD Line targets remain on the downside: 987.51 (from the weekly chart) and 979.31 (from the daily chart). In fact, if the lack of a higher high today is coupled with a lower low then the price structure will look quite weak.

Bottom Line: In no way would I been long here. I have been short-term neutral since October 9th and remain that way now. Most times when the Level 1 alpha-delta trend line (shown Tuesday) is broken in the manner it was the odds are good that the subsequent decline will hold above the x pulse low (1029.38). A failure to do this would immediately change my opinion to outright bearish. I will not consider going to a long-term bearish stance unless 1019.95 is violated. 1019.95 comes from the monthly chart discussion posted last Saturday. It showed that if 1019.95 is broken the bears will have the upper hand with an initial downside objective between 910 and 940.

Looks Like a Bounce Has Started

It was an “inside” day on the daily chart of the cash S&P500 yesterday. With bullish divergence between price and the RSI in place, the index was able to stabilize. At the end of the day we were able to close above the L1 PP alpha-delta trend line (shown yesterday) and so the odds are good that the initial decline from the October 21 high is complete. On a rally from here we can look at 1054 -1057 (where the Long moving average on the weekly chart sits) and then 1064-66 (daily medium and short moving averages) as initial resistance levels.

Since the break of the daily TD Supply line was not qualified yesterday, our downside TD Line targets remain 987.51 (from the weekly chart) and 979.31 (from the daily chart). Also, as a commenter noted yesterday, the sequence of TD setup days has terminated at seven. There will be no “buy” setup to worry about in the near future. In fact, a rally now will most likely provide us with our missing TD Sequential “sell” countdown bars #12 and #13.

Bottom Line: In my opinion a rally here should not be bought but rather used as an opportunity to position oneself as intermediate term bearish (particularly if a TD Sequential signal develops). I will not consider going to a long-term bearish stance unless 1019.95 is violated.

Level 1 Price Pulses

When all was said and done yesterday we ended up with a down trending price bar on the daily chart of the cash S&P500. When prices approached the TD Supply Line (at 1052.33 yesterday) supply did indeed enter the market and we could go no higher than 1052.18. It must also be noted that the Long moving average on the weekly chart sits at 1053.77 and was itself providing resistance.

When the market sold off and broke below Friday’s low we confirmed the qualified break of the weekly TD Demand Line. This event has an associated price projection to 987.51, which is below the monthly chart’s critical support value of 1019.95. The break of the daily TD Demand Line on Friday was also confirmed yesterday and projects to a similar target at 979.31.

On the bullish side of the coin we had bullish divergence between price and the RSI at the close, and it came in the area where bull markets typically find support - around the 40 area. If any technical development sets the stage for a rally this does. If the bulls can’t take advantage of this set up then we know they currently have weak hands. Furthermore, I think that any rally that can be mustered has a very, very slim chance of making a new high from here. In fact, such a rally would most likely provide us with our missing TD Sequential “sell” countdown bars #12 and #13.

To wrap up I present the latest Level 1 Price Pulse chart. It shows that a complete five wave Elliott impulse pattern was completed at the October 21 high. The chart went on a “sell” when we broke and closed below the beta - x trend line (light blue solid line) the same day. The following alpha pulse then popped to “kiss the trend line goodbye”. Now, the pulses are hinting that the decline from the high is impulsive (five waves) which implies the correction is not over - even if we were to rally over the next few sessions. Over the very short term the market would turn bullish on a close above the alpha-delta trend line (in dark orange). Such a break should not be bought in my opinion since the Level 2 chart is now bearish (see yesterday’s mention of the trend line break). I interpret the chart to say “get bearish on strength here.”

And So November Begins

Yesterday I presented a review of the weekly chart that indicated we had just made a qualified break of the TD Demand Line. If confirmed this week (with a move below 1033.38) it projects to 987.51, which is below the critical value of 1019.95. The break of the daily TD Demand Line on Friday would project to a similar 979.31 if confirmed today. The important 1019.95 number came from the monthly chart discussion on Saturday, which showed that if 1019.95 is broken the bears will have the upper hand with an initial downside objective between 910 and 940. Other downside targets were discussed as well in those postings.

On the latest daily chart, the medium (blue line) moving average proved strong resistance last Friday. The ensuing decline retraced all of Thursday’s GDP rally and broke the Beta - Z trend line on the Level 2 Price Pulse chart. This price action begs the question: Was Thursday’s rally the bull’s last gasp? I think that it was, in the sense that the trend has now turned. The bulls may still stage a vigorous rally, but the chances of making a new high from here are quite slim.

Today will be important if only because the RSI and Composite indices are not confirming the new price low. If price and these indicators were to turn up here we could get a nice pop to the upside. Such a rally would eventually provide us with our missing TD Sequential “sell” countdown bars #12 and #13.

Weekly Chart Review, November 1, 2009

Yesterday I presented a review of the monthly chart. That work indicated that if 1019.95 is broken the bears will have the upper hand with an initial downside objective between 910 and 940. This zone complements the conclusion from last week when I wrote “At this point I note that there are no TD signals on the weekly chart. This would infer that any decline would hold above previous TDST support at 875.“

Reviewing the action over the past month or so, there has been a longstanding TD Trend Factor target of 1079.39 (solid purple line). Note that the first two times we broke that line to the upside (9/25 & 10/16) they were not qualified breaks. We finally had a qualified break the week of 10/23 but then failed to confirm this week. Result? This Trend Factor objective has been met and is acting as resistance to the advance. This week’s failure is a down trending price bar which has made a qualified break of the TD Demand Line (upward sloping dashed green line). If qualified next week with a move below 1033.38 it projects to 987.51, which is below the critical monthly chart value of 1019.95.

Another downside target would be the medium moving average (solid blue line) which should be at about 960 next week. Below that come the targets derived from the monthly charts. We should keep an eye on the market action to see how price reacts at each of these targets.

Bottom Line: The recent RSI/price divergence has led to a sharp decline this week. A move below 1033.38 would make me intermediate term bearish. Break 1019.95 and I become longer-term bearish as well.