Using the RSI (top pane) as a trend indicator, a bear market was signaled on this time frame in September 2008. Of great interest is the fact that we have now turned down right in the area reserved for bear market resistance shown by the double red lines. That is, this indicator is currently saying that the rally from 2009 is most likely corrective in nature and that we may have run out of steam.
Another negative development on the monthly chart is the decline in the Derivative Oscillator (middle pane) over the past two months which has led to a bearish divergence with price. Previously, a 'failure at the zero line' (indicated by the arrow) by this indicator in September 2010 combined with the sharp fall from an extreme reading in December 2009 (while prices only moved sideways), was a warning for a sharp rally. That rally occurred and now the bearish divergence should be cause for concern.
The qualified break of the Demand Line provides a calculated objective of 1276.35 which was met in June. The TD Trend Factor target was 1270.41 (shown by the purple line) and was also met. On the monthly time frame the next support area is provided by the moving averages in the 1214-1225 area. Finally, let's keep in mind that the lower time frames are showing that the bounce up after meeting the monthly Demand Line and Trend Factor targets is still ongoing. I will cover the latest weekly chart by Monday morning.
Bottom Line: Although I think that risk to longer term investors (like myself) is growing, the monthly chart remains a bullish contributor in my work. That is, it does not negatively impact asset allocation towards the equity market at this moment. A break below the March low (as mentioned above) would change that situation.
5 comments:
Hi Saxby, Which of Demark's qualifiers have you used on your monthly chart because it looks like a disqualified TD Line break using the 3 popular qualifiers?
Thanks in advance
Dave
Hello Dave. The break is qualified because, in May:
Close - (High - Close) > Demand Line
Hope this helps.
Sax
Sax, That's qualifier 3 but the Demand line value should be the value of the TD line of the new bar not the bar where you measured the buying or selling pressure. It isn't clear in Demark's first book New Science of Technical Analysis but in his second book New Market Timing Techniques page 169 - "This breakout below the TD Demand Line must occur after the level established by the previous day's (bar's) selling pressure is first exceeded." and from Demark on Day Trading Options page 224 "Qualifier 3 The previous bar's selling pressure must be greater than the current bar's TD Demand Line price level".
Although having typed all this, it did indeed sell off to the price target in your example!! Personally, I think TD Lines were designed for short term trading over a few days and therefore not much use on say weekly or monthly charts.
Thanks
Dave
Hi Dave. If there is one thing I agree with, it is that the wording in his books oftentimes makes it quite difficult to know exactly what he means. That is why I like to follow Jason Perl's book entitled "DeMark Indicators". I believe that I am faithful to his interpretation as described on page 96 and illustrated on page 95. It would be nice to hear if others have an opinion.
In any event, I don't use them as trade or invest 'triggers' but rather as just a part of the analysis used to get an idea of which way the near term price movement may work out.
Cheers!
My old bloomberg manual dated 2005 describes it much the same as the previous poster ie. break the buying or selling pressure then break the line.
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