SPX Weekly Chart - 20 May 2011

 

     The primary working point on this chart continues to be the qualified break (two weeks ago) above the risk level of 1363.53. Since then the market has slumped and the question is whether we have a false breakout on our hands. My working hypothesis has been "no"; that we will see new highs without breaking below the 1294.7 level (the April 18 low).
     As far as Demark counting goes, this week's price flip means that the next possible signal would be a sell setup sequential countdown; which, if it were to occur, is now a full nine six weeks away. [Correction made 7:43 am on 23 May]
     Note that we can break the Demand Line (upsloping green line) in a qualified manner this week by opening below 1340.35. Doing so increases the odds that we will also close (on Friday) below that line.
     Let's also review the RSI (top pane). One can make the case that a bearish divergence has occurred just at the time we had a potentially false breakout above the risk level. However, I was not buying it two weeks ago because of the positive reversal shown by the two arrows on the RSI which match the November 26, 2010 and March 18, 2011 price closes. This reversal calculates to a 1432.81 price target. If the RSI breaks below the blue line defining the positive reversal it will be negated.
     Bottom Line: The weekly chart is in a bullish position and the allocation mix meter is at +100%. Although currently still expecting new highs there are clear events that would tell me I am most likely wrong; a breakdown in the RSI and, primarily, price violating the 1294.7 level.