SPX Weekly Chart - 9 Sep 11

     Recent review of the monthly chart showed an overall bearish position for the cash SP500 while the daily showed that a choppy counter-trend rally has further to go. What does the weekly chart have to say?
     In my last weekly posting (26 Aug) I stated that an A-B-C or 1-2-3 structure has formed from the May 2011 high. The first two D-Waves (either A-B or 1-2) correspond (in this particular instance) to the x and y pulses shown on the chart. The strong decline from July 8 to August 12 has been with 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. Since the RSI has broken below 38 I favor the bear market 1-2-3 D-Wave count. Is wave 3 in this model over? Technically no. The fourth D-wave can only be said to be underway when we see a high greater than the previous 12 highs.
     The implication is that D-wave 3 has more to go to the downside, and that the price action since the z-pulse bottom is just a bounce or consolidation. Note that the low of August 12th came right at the 38.2% retracement level of the 2009-2011 rally. One week later the RSI (top pane)  bounced off of the level reserved for support in bear markets and the Composite indicator (middle pane) made bullish divergence with the RSI. This is the evidence that supports that a bounce or consolidation is in fact underway. And this interpretation fits the monthly and daily scenarios we have been discussing. The price action in this bounce/consolidation is an alpha pulse on the weekly chart.
     Going forward we can use the price pulse model to gauge when the bounce/consolidation (if it is solely associated with just the alpha pulse) might be over. Right now it would be signaled on any move below 1121.09; which was also important in the daily chart. To the upside I think the short (red) or medium (blue) moving averages is the best we might get before the larger downtrend assert itself.
     Bottom LIne: For this week I think the levels to watch are the long (green) moving average and the Demand Line (dashed green line). Qualified, confirmed breaks of these lines would point to; respectively, either a bounce (vice consolidation) or renewed decline. The allocation meter is at a +50% and I am expecting the August low to give way after this consolidation/bounce completes.