We broke the TD Demand Line (upsloping green line) in a qualified manner this past week by opening below 1340.35. This break increased the odds that we would close below that line on Friday and indeed we have. Such a qualified break gives a minimum objective of 1282.73 to the downside. Note that the medium (blue) moving average will be near this level next week. I am not predicting this objective will be met, only that it is a high probability target should the short (red) moving average fail to contain this decline.
For me, the primary working point on this chart continues to be the qualified break (April 29) above the risk level of 1363.53. Since then the market has slumped and the question is whether we had a false breakout. My working hypothesis has been "no"; that we will see new highs without breaking below the 1294.7 level (the April 18 low).
Why would the short moving average hold? The fact that we have failed to close below it for two weeks is not proof that it will continue to hold. A primary reason for my opinion is that the monthly chart is still positive. With a still-bullish higher time frame I prefer to view the RSI (top pane) in a positive rather than negative fashion. Instead of relying on possible bearish divergence, I am focusing on the still valid 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, a close below the short moving average and, primarily, price violating the 1294.7 level.
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