I certainly haven't foreseen how every squiggle in price action will develop and nor do I ever expect to. As a longer term investor I hope to catch the major turning points and long term trends. For nearly a month now I have been looking for the March lows to hold followed by a choppy rally back above 1344. Although the last few days have been anything but choppy, the cash SP500 has rocketed straight up, hitting 1341.01 on Friday and is now very close to the long mentioned 1344 level.
The rally from the June 16 low on the daily chart is the "bounce" mentioned in yesterday's monthly chart discussion. It is developing according to the Price Pulse theory scenario outlined in my weekly chart posting for June 10. I repeat it here so you don't have to hunt for it:
"Currently the weekly chart's price pulse scenario can be captured by these words from Tony Plummer's book "Forecasting Financial Markets: Technical Analysis and the Dynamics of Price" on page 109. "A short term sell signal is triggered as the x-wave falls below the bottom of the Beta-wave. However, the subsequent y-wave rally may abort the signal by rallying back above it; indeed, it may even retrace close to the peak levels established by the alpha-wave and the delta-wave. A longer-term (or regenerated) sell signal is given when the z-wave penetrates below the bottom of the x-wave." The pulses are marked on the chart.
I am expecting the y pulse (wave) to begin before the March low is broken and for it to rally above the peak of the alpha pulse but perhaps not the delta pulse."
The 'x' pulse ended after reaching the Trend Factor target (1265.68) and the long term trendline (see chart). We broke below the Trend Factor target in a qualified manner the week before last but failed to close below it. This was a warning that the bulls might be able to hold and launch the "y" pulse rally. The break of the Trend Factor target was subsequently invalidated (proven false) last week when the bears failed to open the week below the 1265.68 mark. Additionally, the weekly RSI has turned up without dropping below the bull market support zone (38-42). Result? The 'y' pulse rally which has brought us very near the 1344 target. Now what?
At this point there is no reason to abandon the price pulse model. Theoretically, the current 'y' pulse rally can move us to new highs but I don't expect that. Instead I will be watching for topping action before we reach the delta pulse high. Key will be resistance provided by the old sequential 13 risk level (shown by the horizontal cyan dashed line) at 1363.53 and the current supply line (the downsloping red dashed line). Let's see if the bulls can break them in a qualified manner and let's also see what the technical indicators look like if and when we get there.
Bottom Line: The allocation meter is at +50%. Monday is a holiday and so the next daily report will be Tuesday morning before the market opens.
1 comment:
Nice. I'm not familiar with Plummer's work, but it looks good. What has caught my eye (an admittedly bearish one at this point) is the straight upwards rally last week. This is typically very bearish as it sends the shorts screaming out into the wilderness. As a result I am looking (hoping?) for a quick drop to 1300-- maybe a bit below (@.618) -- and one last bounce to hit a "3 of 3" on the D Wave Hourly-Daily. I'm still expecting the Daily TDST at 1345.10 to hold here. One other event I've noted: the Daily Naz Comp has put in a perfected Sell on its 9th bar. Interesting week ahead. :))
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