SPX Monthly Chart - May 2011

     On a monthly basis the cash SP500 formed another uptrending price bar in May. After completing a TD Combo countdown to bar #13 in February we have yet to have the price flip required for an actual sell signal. Such a flip would occur in June if we were to close the month below 1327.22. Also note that we are now at a sequential countdown bar #11 and have made a sell setup bar #9. All of this data show the market inching closer to a sell signal - but it hasn't happened yet.
     Continuing to be of extreme importance on the monthly chart are the 1403.03 and 1404.05 levels. If price exceeds the former number then any and all Combo or Sequential signals will be held in abeyance. If price exceeds the latter number in a qualified manner then we know that the rally from the March 2009 low is not just a counter-trend rally (as defined by TD concepts). Using the RSI (top pane) as a trend indicator we can see that a bear market was signaled on this time frame in September 2008. Of great interest is that we continue right in the area reserved for bear market resistance. That is, this indicator is saying that if the rally from 2009 is corrective in nature we have about run out of steam. A move above 67 in the RSI is equivalent in meaning to a qualified break of 1404.05. The new setup bar #9 implies that we should have resolution of this bull/bear tension by the Autumnal Equinox.
     Another worrisome (but not yet fatal) development on the monthly chart is the turn down in the Derivative Oscillator (middle pane). First note the developing bearish divergence with price beginning now. Then notice the 'failure at the zero line' (indicated by the arrow) that was formed by this indicator in September 2010. That failure, along with the sharp fall from an extreme reading in December 2009 while prices only moved sideways, was a warning at the time for a sharp rally. That rally has occurred and now the developing bearish divergence should be cause for concern.
     Finally, let's see what the TD Demand Line (dashed upsloping green line) has to offer. 1338.35 is the key number in June. A break below that level would be a qualified break of the Demand Line, indicating that we can expect June to close below that level with a calculated objective of 1276.35. Meeting such an objective would certainly raise the odds of a June price flip.
     Bottom Line: Although risk is growing, the monthly chart remains in a bullish position at this moment. Developments on lower level time frames need to be watched closely as to anticipate developments on the June monthly chart.