Chuck's Waves - SP500 Cash Index

SPX Daily Chart - 9 June 2011

     At least for now the cash SP500 has held TDST Support at 1279.20.
     On the hourly chart yesterday: The market rose immediately after completing both a sequential and buy countdown on Wednesday. Both of these completed counts were accompanied by a bullish price/RSI divergence. We finally had a bullish price flip at the 11 o'clock hour and price responded by climbing steadily. We approached hourly TDST resistance (1296.22) before selling off in the last hour.
     In today's session I will be watching to see if the pullback that started in the last hour yesterday can hold the RSI zone reserved for support in bull markets. Such a development would set the stage for another swing higher. On any such swing I want to see if TDST resistance can be broken in a qualified manner. If so we may reach towards the short (red) moving average.
     Bottom Line:  The allocation mix meter is at +50%. My near term scenario has the current decline ending shortly (within the next few sessions if it hasn't already) and holding above the March lows. This will be followed by a choppy rally that takes us back above the 1344 level. However; I remain quite concerned that the high may already be in for the rally from the 2009 low.

SPX Daily Chart - 8 June 2011

     The cash SP500 declined again, this time to the TD Support Line associated with the currently active sequential sell countdown. This support zone (1275-79 area) and the 1263-66 area are the last ones before the critical March bottom.
     On the hourly chart yesterday: After starting the session by forming a TD Sequential Buy Countdown Bar #13, the market bounced creating positive divergence between price and the RSI. This weak upward move stalled by noon and we drifted sideways for an hour before making fresh lows before 2pm. A rally during the 3pm hour formed another bullish price/RSI divergence but we have yet to see a bullish price flip to confirm the sequential buy signal. The session ended with another touch of new lows although the bulls did manage to close above the TD Support line at 1279.20.
     In today's session I will be watching for a bullish price flip to confirm the TD Sequential buy countdown. Such an event with bullish price/RSI divergence in place should lead to at least a rally attempt. This price flip must happen before a qualified break of the bullish risk level of 1262.93.
     Bottom Line:  The allocation mix meter is at +50%. My near term scenario has the current decline ending shortly (within the next three sessions) and holding above the March lows. This will be followed by a choppy rally that takes us back above the 1344 level. However; I remain quite concerned that the high may already be in for the rally from the 2009 low.

SPX Daily Chart - 7 June 2011

     The session started with a bounce as the cash SP500 reacted to reaching the TD Trend Factor target of 1285.54 (and the overall support zone in the 1282-86 area) as well as completing a TD Buy Setup on the hourly chart. That bounce was done by late morning and then we drifted sideways until the last hour of the day when the bears reasserted themselves. We ended up with an inside bar, back in the support zone and with a close just below the Trend Factor target.
     In today's session I will be watching for a TD Sequential buy countdown to conclude early on as we ended yesterday on bar #12. If the market can find its footing the first upside target would be the short moving average which should be at about 1313 or so today. If we can't hold here then the 1275-1279 support area is next, with even lower support zones found at 1263-1266 and then 1249-1257.
     Bottom Line:  The allocation mix meter is now at +50%. My near term scenario has the current decline ending shortly (within the next four sessions if 1284.72 wasn't the low) and holding above the March lows. This will be followed by a choppy rally that takes us back above the 1344 level. However; I am now quite concerned that the high may already be in for the rally from the 2009 low.

SPX Daily Chart - 6 June 2011

     Lots to talk about today. Yesterday the allocation mix meter fell to +50% as the market continued to weaken. With the break of TDST support confirmed the door to the next downside support target of 1285.54 (TD Trend Factor) was opened. We hit that mark today but closed just above it. The low yesterday was at 1284.72. Recall from the May 27 weekly post that the weekly TD Demand line break had a calculated objective of 1282.73. The weekly medium moving average sits at 1287.17 this morning. Now that we are in the 1282-1286 target zone, what next? More on this below; but first a remark on the weekly chart's false upside breakout of late April/early May.
     The methodology I was using to validate the break of the risk (stop loss) level on the weekly chart at the late April/early May high (see weekly chart updates) is generally the criteria used for TDST line breaks. Instead, if one uses the criteria usually used for qualifying TD demand/supply line breaks, the risk level was never broken in a qualified (confirmed fashion); i.e. it was a false breakout. I will keep this in mind going forward.
     So now what? First we have to see whether the current support zone holds. If we can't hold here then the 1275-1279 support area is next, followed by 1263-1266 and then 1249-1257. Today I will be watching for the end of a sequential buy countdown on the hourly chart. We ended yesterday on bar #11.
     Bottom Line:  The allocation mix meter is now at +50%. I consider myself more an investor than trader and having only half a position is indicative of my belief that risk is getting quite high here. This does not mean I think the cash SP500 is about to immediately implode. My near term scenario has the current decline ending shortly (within the next five sessions) and holding above the March lows. This will be followed by a choppy rally that takes us back above the 1344 level. However; I am now quite concerned that the high may already be in for the rally from the 2009 low.

SPX Weekly Chart - 3 June 2011

     I want to start this posting with a quick review of the monthly chart in order to help clarify my thinking. After completing a TD Combo sell countdown to bar #13 in February we have yet to have a price flip for a sell signal. Such a flip would occur in June if we were to close the month below 1327.22. At the end of May we made a TD sell setup bar #9. This puts added emphasis on the possibility of an important top being made.
      The weekly chart made a TD Sequential (sell) #13 bar on February 18, 2011 (completing in conjunction with the monthly TD Combo). On this time frame we did have a price flip - on March 11. For this sell signal, the calculated risk (stop loss) level was 1363.53. We closed above this level on April 29 which led me to expect still higher highs. Since then the question is whether or not that break of the risk level disqualified the sell signal or if it were only a false breakout. It all depends on how you define a qualified break. My working hypothesis has been that it was a qualified break and so we will see new highs without breaking below the 1294.7 level (the April 18 low). If the 1294.7 level is broken I will have to re-look my working definition of what constitutes a qualified break (realizing that no methodology will ever be perfect).
     We closed below the short (red) moving average this week and now have to see whether that break is confirmed or not. Last week I gave a few reasons on why any break of this average would not be confirmed. Let's review them. (1) A primary reason for my belief is that the monthly chart is still positive. But again, perhaps my definition is wrong. Maybe the monthly shows both a completed TD Combo and a completed TD Sell Setup with neither one negated. Even if one "trades" with a price flip, perhaps the chart should be defined as bearish on signal completion - not trade entry. (2) I have been viewing the RSI (top pane) in a positive rather than negative fashion. Instead of relying on the displayed bearish divergence, I had been focusing on the possible positive reversal (shown by the two arrows on the RSI which match the November 26, 2010 and March 18, 2011 price closes). This reversal calculated to a 1432.81 price target. However, as can be seen from the chart, this positive reversal has been negated; leaving the bearish divergence!
     All of the above point to the fact that the monthly and weekly charts are quite weak right now; if not outright bearish. Also of note is the fact that the break (two weeks ago) of the TD Demand Line (upsloping green line) in a qualified manner gives a calculated objective of 1282.73 to the downside. Note that the medium (blue) moving average will be near this level this upcoming week. It looks like this objective will be met if we confirm the break of the short moving average.
    Bottom Line: Assuming the Sequential risk level of 1363.53 was confirmed broken, the weekly chart is in a bullish position and so my allocation mix meter is at +100%. Although currently still expecting new highs there are warning signs that all is not well with the equity markets. Any violation of the 1294.7 level this week will immediately make me take half my position off the table (allocation meter falls to +50%).