SPX Daily Chart - 4 August 2011

     It was a horrible day no matter how you slice and dice it. Without bullish divergence between price and the RSI, Wednesday afternoon's bounce associated with the buy setup on the hourly chart led nowhere. This morning we find ourselves waiting for another sequential or countdown completion on that time frame; both counts being on bar #7.
     Thursday's price action sliced through the risk level (shown on the chart by the horizontal dashed cyan line at 1242.03) associated with the sequential buy signal on the daily chart. This time the break was qualified. Perhaps the bulls also need to wait for another buy setup to develop on this time frame. Waiting a bit is also counseled by the indicators I follow. As an example, the RSI (top pane) is now at it's lowest level since October 2008. Notice this is well prior to the ultimate 2009 low. The point is that extreme indicator readings most often indicate that when the market finally finds its footing it will come back and test the low after a rally or consolidation.
     Bottom Line: The allocation mix meter is at +25%. Waiting for the dust to clear.

SPX Daily Chart - 3 August 2011

     The cash SP500 fell during the morning, breaking below the March low of 1249.05 which was critical to the monthly chart and the equity asset allocation meter. I have taken more money off the table and now only have a 25% position. By the end of the session the market had recovered all of its losses on the day and finished positive.
     On the hourly chart the TD sequential buy that completed at 1pm Tuesday never executed as we had a valid and confirmed break of the associated risk level of 1255.95. Interestingly, the market bottomed within a point of the calculated target from the confirmed break of the TD supply line (upsloping dashed green line) presented yesterday. At the noon hour the hourly then completed another TD Buy setup which led to the bounce into the close. Disconcerting is that the hourly RSI made low along with price - there was no bullish divergence. At first blush I interpret this as telling me a longer-term low is not in.
     Wednesday's price action dipped below the risk level (shown on the chart by the horizontal dashed cyan line at 1242.03) associated with the sequential buy signal on the daily chart. This was an unqualified break and is something the bulls can try to build on. 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. That would occur on a close today above 1292.28. Furthermore, It would still 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 is now at +25%. Yes, this implies that as a longer term investor I think a significant equity top is in. I 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.

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.

SPX Weekly Chart - 1 Aug 2011

     After one trading day into the new week it is apparent that the equity market is not concerned with the debt ceiling, it is concerned with the trendline that defines the entire rally from the 2009 low. This line is shown on today's chart of the weekly cash SP500 in orange. We broke this line in a confirmed manner Monday morning by opening below it. The spike up from that open ran out of steam as we approached moving average (both short and medium) resistance.
     The price action has now confirmed that the Y-pulse completed at the July 8th high.  Per the Price Pulse Model (from Tony Plummer's book "Forecasting Financial Markets: Technical Analysis and the Dynamics of Price" on page 109, revised edition 1990) we've been discussing over the past several weeks, a longer-term sell signal will be given if the z-pulse were to penetrate below the x-pulse low of 1258.07. The chart initially turned negative when the Beta-pulse low was broken during the week of June 10.
     As a follow-up to the last weekly post I have included the Derivative Oscillator (top pane). Look what happened at the May 6 (delta pulse) high: this indicator failed at the zero line. Are we about to fail at the zero line again? If the action remains weak this week the answer will be yes.
     However, there is usually always something for the opposite side to hold on to. In this case the bulls will want to argue that a deep decline will be hard to immediately engineer from here for two reasons. One is that the Demand Line (dashed green line) can not be confirmed broken this week and secondly .... the daily chart has just completed bar #13 of a sequential buy countdown! More on this development tomorrow when I look at the latest daily chart.
     Bottom Line: At this point there is no reason to abandon the price pulse model. The bears will reconfirm their control if they can move this market below 1258.07. The allocation meter remains at +50%. That is, a half position in equities.

SPX Monthly Chart - July 2011

     We closed near the lowest prices of the month basis the cash SP500 index. After breaking below the TD Demand Line (upsloping dashed green line) in a qualified manner in June, we has a calculated objective of 1276.35 which was met that same month. We then bounced quickly higher and moved above the June high in early July but then sank during the rest of the month. Of interest is that the July price action failed to confirm the Demand Line break. Although this leaves open the possibility that we rally, I think the odds are against a sustained move to new highs. Here's why:
     First ...  Using the RSI (top pane) as a trend indicator we can see that we have turned down right in the area reserved for bear market resistance. That is, this indicator is currently saying that the rally from 2009 is most likely corrective in nature and that we may have run out of steam.
     Second ... Another negative development on the monthly chart is the decline in the Derivative Oscillator (middle pane) over the past two months which has led to a bearish divergence with both price and the RSI. This bearish divergence is also being shown by the Composite Index (not shown).
     Third ...  June's downtrending price bar was also a price flip (closing lower than the close four bars prior) that cemented the TD Combo sell countdown in February. Note that this was also the first price flip after a sell setup bar #9. This setup bar #9 implies that we should have resolution of this bull/bear tension within five months. The Combo sell and bearish divergence in the derivative oscillator and composite index argue for a bearish resolution.
     These three developments, in my mind at least, outweigh the demand line failure and cast doubt on the equity market going forward. Even if we get a rally in August it will be hard to believe it is a bullish omen. In fact, even if we were to break the 1404.05 (TDST resistance) level in a qualified and confirmed manner it is hard to see a sequential sell signal not forming at the same time - we have been on bar #11 since May.
      With all that said, I have to keep in mind the Bottom Line: 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. As just mentioned, a break below the March low would change that situation.