Another sell setup has completed in the cash SP500. This is the third one since February 11th and, looking at the chart, you can see the other two were followed by corrections within 4-6 trading days. It is also important to note that each was also followed by a bearish divergence between the RSI (top pane) and Composite Index (middle pane) as marked by the arrows. There is no such divergence right now.
The cyan line at 1382.57 is the risk level associated with the current sell setup. Per the comments following yesterday's posts, I will be following the price action around this level quite closely as it appears that there is a tendency for price to break these levels in a qualified manner and then reverse. That is, do we often see false breakouts at these lines? To start the project we have three such lines labeled 1, 2, 3 on today's chart. Line 1 was the risk level associated with the February 11 setup, Line 2 with the March 31 setup and Line 3 the actual TDST support level associated with the February 11 setup.
Lines 1 and 2 were never exceeded before the reversal took place. Although the line is used in a different way, in the case of Line 3 there was a qualified break and then a reversal back to the upside. This is the type of false breakout we are interested in. We can note that the first target after this breakout (TD Trend Factor) is still shown on the chart as a purple horizontal line. That line, though broken, was not broken in a qualified manner. It is here that we reversed back up.
This is just a very small sample and does not prove anything. But it is of interest and I will continue to watch these sorts of developments; particularly with regard to the current situation on the weekly chart (see yesterday's post).
Bottom Line: The allocation mix meter has been raised back to +100%. If the pullback is to continue the first level of support to watch is the short (red) moving average. In fact, it might be instructive to watch for qualified breaks of these lines. The bars of March 1 and 2 may hold some information in this regard; more tomorrow. The first TD Trend Factor target off the March low is at 1391.7 and is marked on the chart. 1391 is also 240 degrees up from the April 18 low.
1 comment:
Saxby, I certainly didn't mean to put you to extra work, but your study may prove interesting. In the meantime, for your readers the 2 hr SPX provides an excellent example of what we were talking about. The Risk Level of the Sell Set Up was no sooner violated, but then the market immediately turned to give us a Buy Set Up today. Again, the algos feeling their wheaties, I suspect.
http://www.screencast.com/t/WCN8hf9DfV2e
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