Trend Change Averted .... For Now

We had an upside opening gap that was not filled during the trading session Tuesday. As explained yesterday, this means that the dip below TDST support was invalidated … the cash SP500 bulls continue to cling on! There were also a couple of other developments that lend support to the bullish case over the short term:

RSI Range. Although an oscillator, the RSI (top panel) can be used as a trend indicator as shown by authors such as Constance Brown. The decline from the May high is still holding the area reserved for bull markets (above the 38 level). Like with TDST support, Monday’s price action threatened to, but could not push this indicator into a bearish trend status.

Composite Index. This indicator (middle panel; invented by Connie Brown) has just made a bullish divergence with the RSI.

Right now the best I can see for the bulls is a rally that peters out by July 8. I can even see the June 18th high of 1654.19 being broken – but not the May high. This is not a prediction or what I expect but the best case bull scenario I can envision. Let’s see what the bulls have.

On the Verge of a Trend Change

In investing I have taught myself not to speculate about the future but stick to the known facts from the charts; and the last few postings on the daily chart show why! So far there has been no temporary bottom and yesterday was yet another downtrending day. The facts proclaim that this chart is getting weaker.

In fact, we now have a qualified, confirmed break of the Beta-X trendline which is a price pulse sell signal. We’ve also had a qualified break and CLOSE below TDST support (see chart of the daily cash SP500 above) That is, we can say that the cash SP500 has is on the verge of breaking support! As Tom DeMark says in New Market Timing Techniques this break can only be invalidated by “(1) a failure to follow through in the direction of the TDST breakout by recording … a lower low … than the TDST breakout day’s … low within the next three trading days or (2) … an upside opening gap the day following a downside TDST breakout that is not filled that same trading day.” We'll watch to see if this occurs.

IF the market is to hold here we should note that the TD Trend Factor target from the May high was just hit (solid purple line on the chart at 1563.31). But with that said the bottom line is that the daily chart is oh so close to being outright bearish like the weekly.

Remember that we have a new monthly and quarterly chart this weekend!

Weekly Update at the Summer Solstice

Although I have been yammering about support holding on the daily chart and a possible temporary low being made I don’t want anyone think I am a bull. No, not at all. In fact, I lean towards the view that the May high was the top of the bull run from the 2009 low. Note that I am not yet committed to this view - hence the question mark on the weekly price chart above (bottom pane).

My first reason for concern regarding the bullish case is the wave count. This is not an Elliott count but similar based on price pulses. We are close to confirming the end of a large Zigzag pattern from the 2009 low. This Zigzag is wave ‘D’ within a large Expanding Triangle from the 2000 high. If this view is correct then wave ‘E’ of the triangle will go below the 2009 low.

Next, there was a bearish divergence between the RSI (top pane) and Composite Index (middle pane) at the recent high. Additionally, we see that a TD Combo 13 sell signal was generated on May 10th and a TD Aggressive Sequential 13 sell signal on May 31st. I use these signals in a conservative fashion – to me they are not activated until we get a price flip. Such a flip occurred on June 14th. On the other hand, these sell signals can be negated. For the Combo signal such a negation requires a confirmed, validated break of the 1655.81 level (shown by the horizontal cyan colored line). Breaks of that line during the weeks of May 17th, May 24th and May 31st were subsequently invalidated. Bottom line: This chart is on a technical sell.

From a wave perspective … A move to a new high from here means that the action from May 22 is wave 2 in an upward trending pattern from the X-Pulse (wave 4) low. A break below the April 18th low (1536.03) would be the proof I need at this time to commit to the interpretation that the rally from the 2009 low is complete as the “D” wave of an Expanding Triangle.

Finally, at this time the break of the Beta-X trendline on the weekly chart is not qualified but should at least worry the bulls.