How Goes the Rally?

Although the rally continues it has been a choppy affair that looks corrective to me. There are a couple of things I am watching here:

1) Interplay between price and the indicators. Both the composite index (middle pane) and RSI (upper pane) are ahead of price here. While the RSI is higher than it was on August 23, price is not. More concerning is that the composite is higher than it was on August 8th! Why the concern? As Connie Brown says in Technical Analysis for the Trading Professional, “You are on the wrong side of the market if the oscillators can move without prices following.” In fact, if these oscillators were to turn down from here we would have bearish negative reversals in place. We’ll have to watch and see what happens.

2) Price Pulse. The odds are high that the August 28th low marked the end of the Beta pulse and so we would now be in Delta. Under Price Pulse theory a failure of Delta to exceed the previous Alpha pulse high (1669.51) keeps the market bearish.

Bottom line: The daily chart remains bearish. Even if a stronger rally develops here I would expect it to fail to make new highs. We would then reverse and go on to make even lower lows.

Pent Up Demand at the Open?

So far the bullish divergence between the composite index (middle pane) and RSI (upper pane) has led to nothing but a price consolidation. Indications are that the cash market will pop at the open due to “pent up demand” over the long weekend but for how long will that last? If the rally can’t hold we’ll have to see how price does at the TD Trend Factor target (purple line at 1614.62) as well as the Beta-X trendline (in orange). A close beneath this trendline will significantly raise the chances that the trending impulse pattern from last November is complete.

Bottom line: The daily chart remains bearish. Even if a rally develops here I would expect it to fail to make new highs and then go on to make even lower lows.

Weekly Chart Remains Bearish

This chart remains bearish. Here was the three step process that culminated in a bearish rating:

1) A TD Sequential countdown bar #13 on August 2,

2) The cash S&P500 had bearish divergence confirmed between price and the RSI (top pane) on August 9, and

3) A price flip occurred on August 16.

The associated “stop loss” (or risk) level is at 1737.48 (horizontal cyan line).

On this chart, the next bearish development would be to confirm that the August 2 high also marked the end of the green level Y pulse (and hence wave 5 in the trending impulse pattern from the November 2012 low). Currently it would take a move below the June 2013 low to get that confirmation. However; an “early warning” signal for this event would be a close below the Beta-X trendline shown in blue.

Finally, note that the June 2013 low must still be broken in order to show the TD D-Wave Triple Three count (presented in the recent series of postings on waves) as complete. Please note that the wave count shown on the chart is not that D-Wave count but instead one based heavily on my price pulse work. I use the D-Wave count in a corroborating role.