SPX Daily Chart - 2 August 2011

     First things first. Following yesterday's post we must now acknowledge that the bears have reconfirmed their control of the cash SP500 market. This brings us right to what was said two days ago in the latest monthly post: "... in my asset allocation work the actual "sell" signal will not come unless we get a print below the March low of 1249.05. Even though I believe that risk is growing for longer term investors (like myself), the monthly chart remains in a bullish position 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 would change that situation." Such a move (now only 5 SPX points away) and the asset allocation meter immediately falls to 25%.
     Is there anything positive in the technicals as far as the bulls are concerned?  Here we need to look closely at the hourly and daily charts. Let's start with the hourly. I have a TD sequential buy that completed at 1pm yesterday but have not yet had it confirmed with a price flip. To me this means the chart continues on the "verge" of a buy signal. However, this signal is already on the brink of being nullified as price has already had a valid break of the risk level at 1255.95. This will have to be watched closely this morning to see if a buy signal is actually generated or not.
     On the daily chart (attached) we had a validated and confirmed break of the TD supply line (upsloping dashed green line) on July 27. The calculated target associated with this event is 1235.36 with the next TD Trend Factor target at 1209.83. Both targets are shown on the chart. Will we reach them? The RSI (upper pane) continues to show that a bear market is underway on this time frame; but, we just completed a sequential buy countdown yesterday. The former fact supports reaching the targets while the latter says we may not. On top of this we can lay the daily price pulse pattern which shows we are in an X-pulse of a (still) bearish pattern. I think that this tilts the odds in favor of the bears.
     Keep in mind that in my work the sequential only gives a "buy" signal if we get a price flip before a qualified and confirmed break of the risk level (shown on the chart by the horizontal dashed cyan line at 1242.03).  Furthermore, it would also take a price pulse buy signal (a move above the delta pulse high of 1347) before the allocation meter would be raised.
     Bottom Line: The allocation mix meter remains at +50% but would drop to 25% on any break of the March low. I believe that we now have confirmation that the July 7th high was the top of a counter-trend rally and that the rally high from the 2009 low was very likely made on May 2. I would view any sequential buy signals on the hourly and/or daily charts as indicators of nothing more than a counter-trend rally. Perhaps playable by traders but not by my system.