It was, simply put, a horrible week for the cash SP500. After qualifying a break of the trendline that defines the entire rally from the 2009 lows (shown on today's chart of the weekly cash SP500 in orange), a feeble rally attempt failed at the short (red) and medium (blue) moving averages. The market then plunged in the Z-pulse of the price pulse model. Recall that the Z-pulse often contains the sharpest declines as the Delta-pulse often contains the largest rallies. The break of the bullish trendline was not only confirmed but the break of TDST support (horizontal dashed green line at 1219.50) was qualified as well. Price continued to fall and finally tried to find support at the end of the week at the long (green) moving averages.
Using the RSI (top pane) as a trend indicator shows the seriousness of the current decline. The rally from the 2009 lows was shown to be of the bullish variety in April 2010 when the indicator broke above the zone reserved for bear market resistance. Note that we then held the zone reserved for bull market support when we pulled back into the Summer of 2010. This decline also held well above the Long moving average. The bull was reconfirmed on November 5, 2010 when the RSI again moved above the 63-67 zone. Bearish divergence after a sequential sell countdown 13 forewarned of trouble, and now we have broken below the support zone for bull markets and the Long moving average.
Bottom Line: At this point there is no reason to rush into any new judgments abut the medium term outlook. The bears have reconfirmed their control of the market and the allocation meter is down to +25%.
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