SPX Daily Chart - 5 May 2011

     The cash SP500 closed below the short (red) moving average yesterday and reached for the medium (blue) average. There is also Fibonacci and demand line support just under 1325 and then the long average with TDST Support at about 1313. We should also note the large gap just above TDST support. The short moving average on the weekly chart is at 1325.14 right now, adding further emphasis to the fib cluster and demand line just mentioned.
     Continuing the discussion on qualified breakouts from yesterday .... I have marked the March 1 bar with an arrow. Even if one can say that this price bar broke the medium (blue) moving average and that the break was "qualified" the next session, what does it mean to say "that the qualified break was a warning that lower lows were still to come?" Does this mean they will come six years from now while price rallies 423% in the meantime? Obviously any useful 'warning' of lower lows must mean 'soon' and must imply only a very 'modest' rise in the other direction first. I think the next step is to try and quantify 'soon' and 'modest' if possible. As a first guess based on an inadequate visual survey of some charts, I will propose that soon = within six bars and that modest = no more than the previous price fractal (defined as a high (low) greater (less) than the two highs (lows) both before and after it. By this rule, the qualified weekly chart break of the 1363.53 risk level is warning that we will be at new highs within six weeks and that the March 18 low will not be violated. If we close today without violating 1294.7 then that becomes the low that will not be violated. I will continue to monitor and tweak these variables going forward.
     Bottom Line:  The allocation mix meter remains at +100%.

SPX Daily Chart - 4 May 2011

     The pullback almost reached the short (red) moving average yesterday and so this point still should still be considered the first level of support. The low yesterday was at a confluence of Fibonacci support (see chart). Lower is the medium (blue) moving average and then the long (green) average. Note that the short average aligns with a 50% Fib retrace of the setup, the medium average with a 78.6% Fib retrace and the long average with TDST Support itself. We should also note the large gap just above TDST support. The short moving average on the weekly chart is at 1326.08 right now, adding further emphasis to the daily medium average level.
     Continuing the discussion on qualified breakouts from yesterday .... I have marked the March 1 bar with an arrow. One can say that this price bar broke the medium (blue) moving average by closing below it. On March 2 the break was "qualified". But instead of continuing lower the market shot higher the next session. My tentative belief is that the qualified break was a warning that lower lows were still to come and this played out. Also note that on March 3 and March 8 the upside breaks of the short (red) moving average were not qualified and the rally attempt failed.
     On March 23 the upside break of the short moving average was qualified the next day and the rally continued. On March 25 there was an upside break of the medium moving average. It was qualified the next day, and after an attempt to move lower the rally asserted itself.
     The downside break of the short moving average of April 11 was qualified and the market sold off into the April 18 low where the long moving average held. Please note that on April 18 the medium moving average was also broken but the break never qualified. The minor rally from that low then began. Upside breaks of the medium and short moving averages occurred on April 19 and 20 respectively and were both qualified.
     Again, only a small sample size but at least with the moving averages the implication seems to be that a qualified break of the line is required for the trend to continue.
     Bottom Line:  The allocation mix meter has been raised back to +100%. The first TD Trend Factor target off the March low is at 1391.7 and is marked on the chart. 1391 is also 240 degrees up from the April 18 low.

SPX Daily Chart - 3 May 2011

     Another sell setup has completed in the cash SP500. This is the third one since February 11th and, looking at the chart, you can see the other two were followed by corrections within 4-6 trading days. It is also important to note that each was also followed by a bearish divergence between the RSI (top pane) and Composite Index (middle pane) as marked by the arrows. There is no such divergence right now.
     The cyan line at 1382.57 is the risk level associated with the current sell setup. Per the comments following yesterday's posts, I will be following the price action around this level quite closely as it appears that there is a tendency for price to break these levels in a qualified manner and then reverse. That is, do we often see false breakouts at these lines? To start the project we have three such lines labeled 1, 2, 3 on today's chart. Line 1 was the risk level associated with the February 11 setup, Line 2 with the March 31 setup and Line 3 the actual TDST support level associated with the February 11 setup.
    Lines 1 and 2 were never exceeded before the reversal took place. Although the line is used in a different way, in the case of Line 3 there was a qualified break and then a reversal back to the upside. This is the type of false breakout we are interested in. We can note that the first target after this breakout (TD Trend Factor) is still shown on the chart as a purple horizontal line. That line, though broken, was not broken in a qualified manner. It is here that we reversed back up.
    This is just a very small sample and does not prove anything. But it is of interest and I will continue to watch these sorts of developments; particularly with regard to the current situation on the weekly chart (see yesterday's post).
     Bottom Line:  The allocation mix meter has been raised back to +100%. If the pullback is to continue the first level of support to watch is the short (red) moving average. In fact, it might be instructive to watch for qualified breaks of these lines. The bars of March 1 and 2 may hold some information in this regard; more tomorrow. The first TD Trend Factor target off the March low is at 1391.7 and is marked on the chart. 1391 is also 240 degrees up from the April 18 low.

SPX Weekly Chart - 2 May 2011

 

     After registering a countdown 13 bar the cash SP500 moved essentially sideways for nine weeks. It is now the eleventh week since that bar #13. Recall that if the countdown is going to lead to a change in trend it should become apparent within twelve bars and so time is about out. There is nothing that says a complete countdown must result in a change in trend, a simple consolidation is just as valid. In fact, as explained yesterday, perhaps a correction and not a change in trend was the correct event to anticipate.

    We should also note that the RSI (top pane) has moved back above the area reserved for resistance (parallel red lines) in bear markets. While this may allow one to claim that the bulls still have room to run, not all the technicals are so supportive. For instance, price is now at a new high while the RSI is not. Any drop in the indicator here would set up a bearish divergence as shown by the two arrows. Also note that while the TD Supply line (in red) was broken, it was not done so in a qualified manner.
     That being said, we did close (1363.61) above the TD Risk level of 1363.53 last week and we qualified that break yesterday. This means that the countdown 13 we started this discussion with is no longer active and that higher prices lay ahead.
     Bottom Line: Since we have had a confirmed break of the 1363.53 risk level the weekly chart is back to a bullish position and the allocation mix meter is back to +100%.

SPX Monthly Chart - April 2011

     The cash SP500 completed a TD Combo countdown to bar #13 in February 2011. In my work this is not an automatic "sell" signal. That requires both a price flip and monthly price pulse sell signal. Neither of these events occurred in April. A price flip would happen in May if we close the month below 1286.12. The Price Pulse signal is a more stringent requirement, requiring a print below 1249.05.
     Regarding the Combo/Sequential signals: My hypothesis at this point is that a price reversal and change in trend should only be expected on the lower time frames (weekly & daily) if a signal has registered on the higher time frame - in this case the monthly. This hypothesis implies that we should have only expected a correction and not a change in trend after the  February high.
     Of extreme importance on the monthly chart are the 1403.03 and 1404.05 levels. If price exceeds the first number then any and all Combo or Sequential signals are held in abeyance. If price exceeds the latter number in a qualified manner then we know that the rally from the March 2009 is not counter-trend under TD concepts. Using the RSI (top pane) as a trend indicator we can see that a bear market was confirmed on this time frame in September 2008. Of great interest now is that we are right in the area reserved for bear market resistance. That is, this indicator is saying that if the rally from 2009 is counter-trend in nature we have run out of steam. A move above 67 in the RSI is equivalent in meaning to a qualified break of 1404.05.
     Due to the lack of a change in trend at the February high, it is very likely that the Elliott pattern from the July 2010 low is subdividing. If the March 2009 low started a new Elliott Wave pattern then we are currently in wave three of three (impulse scenario) or three of C (zigzag scenario).
     Bottom Line: The monthly chart remains in a bullish position.