On the Verge of Turning Bearish

The cash S&P500 switched course and formed a down trending price bar yesterday. Let’s look at the evidence for claiming that a top is being made.

1) TD Sequential signal on 11/9. The stop level with that signal is at 1121.95. The most conservative action continues to be to wait for confirmation of a sell-off which now means a close below the signal day close of 1093.08.

2) The Level 1 Alpha pulse ran from the 11/10 low to the 11/11 high. Since Beta has broken below the 11/10 low the odds are high that a turning point is in.

3) The RSI has just formed bearish divergence with price.

4) A complete zigzag pattern has unfolded from the March low.

Bottom Line: No change. I have been neutral since October 9th and remain that way now while waiting for resolution of the Sequential signal, which may come today. Also note that the pending Sequential “buy” on the dollar index will be triggered today unless we close below 75.06. This is important because the dollar index and equities have been moving in opposite directions since March.

New Rally High

The cash S&P500 reached a new rally high on an up trending price bar Wednesday. It continues to be prudent to wait for more definitive proof that a top is in before acting on the active sequential “sell” signal. The stop level with that signal is at 1121.95. The most conservative action continues to be to wait for confirmation of a sell-off which now means a break below the 1069.30 level, which is just above where the medium (blue) moving average will be today.

With a new high made and the Level 1 price pulses showing the trend as up, when will I give up this topping notion? If the stop is violated or perhaps if we reach nine consecutive positive setup days. Yesterday was setup day five. On the flip side … if the RSI turns down here we will get a “sell“ signal with that indicator. If we get another up trending day with a higher close we will see a TD Combo “sell“ generated.

Bottom Line: No change. I have been neutral since October 9th and remain that way now while waiting for resolution of the Sequential signal. Hopeful equity bears should note that the pending Sequential “buy” on the dollar index is in danger of being extinguished if we get consecutive down setup days today and Friday - that would help the equity bullish case.

Waiting (Patiently)

Unlike Monday there was not a lot of net price movement but it was yet another up trending price bar on the daily chart of the cash S&P500. And there is not much to add except for the fact that the swing chart (orange line) has turned back up without showing a trend change.

The TD Sequential is on a “sell” signal with the stop level at 1121.95. The most conservative action is to await confirmation of a sell-off using the level of 1066.63, which is just above the short and medium moving averages. Note that if the market does make a higher high today then the Level 1 price pulses will join the swing chart as showing the trend as up. So like yesterday … it is important not to jump the gun on a trend change.

Bottom Line: No change. I have been neutral since October 9th and remain that way now while waiting for more definitive proof that a top is in before acting on the new sequential signal.

Ok, So Bar 13 Is In. What Now?

There is no denying that we had another strongly bullish day and another up trending price bar on the daily chart of the cash S&P500. But it was also bar #13 in the TD Sequential Countdown process! If one were to entertain the notion of selling into strength here, the first point to note is the stop level at 1121.95. With that rather wide stop in mind, the most aggressive move is to act on the fact that bar thirteen is in. The most conservative action is to await confirmation of a sell-off using the level of 1046.50. If the market is set to turn down I would expect the high to come in no later than today. Anything later than that and the Level 1 price pulses will be showing the trend as up.

Another way to watch this action is through the Dollar Index. It has been moving inverse to the s&p’s since March and just made its own Sequential bar #13 countdown for a buy signal yesterday. There is also a fairly wide stop for this market too however (74.1), so it is important to not jump the gun on a trend change.

Bottom Line: I have been short-term neutral since October 9th and remain that way now while waiting for more definitive proof that a top is in before acting on the new sequential signal.

Looking For #13

We ended last week with an up trending price bar on the daily chart of the cash S&P500 and remain on bar #12 in the TD Sequential Countdown process. Now that we’ve met the price target of 1068.03 associated with the TD Supply Line break, the only overhead resistance left is the Fibonacci retracement line at 1074.

One item I continue to watch here with interest is the Dollar Index. It has been moving inverse to the s&p’s since March. The Dollar index also remains on a Sequential bar #12 countdown; but, unlike the equity market it is for a buy signal. For today, to make their respective bar #13, the dollar index must close below 75.51 but not trade below 74.9. For the cash S&P500 we need to trade above 1073.19 and close above 1066.65.

Bottom Line: I have been short-term neutral since October 9th and remain that way now while 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.

Weekly Chart Review, November 8, 2009

After 16 consecutive weeks of closing higher than the close four weeks ago the streak has ended. What does this mean? Nothing in itself, but its a symptom of weakness from events that have been covered here previously: Failure at the TD Trend Factor target of 1079, bearish RSI/price divergence, and a qualified break of the TD Demand Line last week. That break was confirmed this week and has an open projection with it of 987.51, which is below the critical monthly chart value of 1019.95. 987.51 also coincides with a 50% retracement of the move from the TDST support line.

Work on the monthly chart indicates 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 two weeks ago when I wrote “At this point … there are no TD signals on the weekly chart. This would infer that any decline would hold above previous TDST support at 875.“

Besides 987.51, another downside target would be the medium moving average (solid blue line) which should be at about 970 next week. Below that come targets derived from the monthly charts. We should keep an eye on the market action to see how price reacts if and when it reaches the laid out targets.

Finally, there is a positive reversal in the RSI here which projects up to 1098.66. This is important because of the rule that positive reversals only verify in bull markets. A failure of the current bounce to make the target is bearish. It would be a failed retest of the high.