A Bullish Divergence Appears

The highlight of today’s chart is the bullish divergence between the composite index (middle pane) and RSI (upper pane). This is particularly interesting at this juncture since I can count five waves down and we are in the SLOT (the 50-78.6% retracement area which I have drawn as a box on today’s chart). This is the area where we should assume that support will hold as price pulls back from a new high.

If this divergence proves false 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: 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.

Potentiality on the Daily Chart

It certainly appears as though the cash S&P500 is now in a wave 5 rally. If that wave count is correct we should be looking for signs of price exhaustion like we did yesterday on the monthly chart. 

The top pane contains the Relative Strength Index (RSI) and the middle pane the Composite Indicator. Although the RSI has eked out a new high the Composite is lagging badly. This is potential bearish divergence. Remember that the Composite Indicator was created to spot those times when the RSI is failing to spot a momentum failure. 

Right now the TD Combo is on countdown bar 12 (shown in the chart) and the Sequential is on bar 10. These two indicators show that we are close to a potential exhaustion event.  My Fibonacci work shows a target area at the 1726 to 1743 level with the TD Trend Factor target at 1738.

As for the price pulses, I use them heavily in deriving Elliott Wave counts. This is in addition to D-Wave counts. With the  ALPHA-BETA-DELTA-X-Y sequence now underway an aggressive “sell” trigger is a close below the Beta –X trendline which is shown in blue. More potential price exhaustion.

And so we have both the monthly and daily charts urging caution. I will review the new weekly chart over the weekend. Cheers!

A Retest of the High

The strong rally from the June low has continued unabated, broken through Fibonacci resistance and now challenges the all-time high in the cash S&P500.

It must be emphasized that the TD Sequential “sell” signal has not been triggered on this chart; a price flip being required after bar 13 was reached on July 8th. Now it must be noted that any move above the 1692.51 level will give us a new TD Setup and recycle our sequential countdown.

From a wave perspective … A move to a new high dramatically increases the odds that the action from May 22 is simply a corrective pattern in a larger upward trending pattern. I will take a look at the wave pattern over the coming days.

A Quick Update of the Daily Chart

A week ago I said “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.”

I Just wanted to pop in and let you know that I have no changes to that view. The only thing I want to point out is that Monday’s action not only took us to the 50% retracement line of the entire decline but just about tagged the underside of the Beta-X trendline. Was it a kiss goodbye?

Elliott Wave - CRB Index (Monthly) - 1 Dec 10

Today begins a series on the Commodity Research Bureau (CRB) Index. After the huge decline from July 2008 to February 2009, the index has recovered in (so far) three waves. The next logical target is just above the market at the TD Trend Factor (purple line) level of 325.74. A fibonacci level is also in this area. Tomorrow I will take a closer look at the move up from May 2010 using a weekly chart.

Can't Rule Out a Rally Attempt Here

It’s not a surprise but it’s now official. The swing chart of the cash S&P500 index (the orange lines on the price chart that move in “step-wise” fashion) has turned lower for the first time since the March low. The index has also confirmed the break of 886 (the 23.6% Fibonacci retracement value). This points to a move towards the 846 level (the 38.2% Fibonacci retracement value); but we may not get there directly.

Even though yesterday’s decline officially turned the swing chart bearish the RSI (top pane of today’s chart) is still holding in the area where bull markets find support. If the rally from March is truly over then a break below 38 on the RSI will come. However, the bulls shouldn’t be expected to just give up on their hard fought accomplishments. If 38 is eventually broken it may be after another rally attempt. There are timing reasons to expect some kind of a bounce here over the next few sessions.

So far the answer to the question asked in Tuesday’s posting matches my “I don’t think so …” gut feeling. It appears that the currently in force Weekly technical sell signal (RSI/Composite divergence) with TD Sell Setup may take precedence over the perfected TD Buy Setup and technical buy signal; but let’s give this a bit of time to play out. In fact, there is a possibility that the composite index (middle pane) may form a bullish divergence with the RSI if we can rally here. This would create another technical “buy” signal on the daily chart.

Bottom Line: Even with a rally attempt I remain bearish on equities here. Overhead resistance lies at both the short (solid red) and intermediate (solid blue) moving averages and then again with the TD Supply Line (dashed red line).

Daily Trend Still Up

Monday saw an uptrending bar form on the cash S&P500 and we continue to move upward in a Y pulse. The ability to move cleanly through the green (long) moving average shows that the bulls are still in charge here. The trend on the daily chart is clearly up.

Price has now moved to where it is 161.8% of the previous X pulse and so short-term long positions should be protected closely. Continue to watch for a “Price Pulse (PP) Theory” sell signal: after Y completes and we fall down through the Beta – X trendline. That trendline stands at 843.46 today.

Breaking through the trendline is not a signal to take shorts. That must wait for at least a break in the price pulse trend, which right now requires a break below 814.53.

Torn Between Two Trendlines

Wednesday saw the cash S&P500 form an “inside” price bar that moved from one (short; red) Gann moving average to the other (long; green). This price action makes it very likely (although not a certainty) that the X pulse from the 845.61 (April 2) high is over and that we are now in an upward moving Y pulse.

The ability to hold above the red moving average shows that the bulls are still kicking. Note that the bounce yesterday was also at a Fibonacci confluence zone (horizontal dashed lines). The next lower level of such support is at 796. The bulls may be still kicking; but are they getting tired? Are the bears about to grab the upper hand?

Two things to watch today: 1) the price action at the long moving average. Failure to move through it cleanly leans bearish. 2) The BETA – X trendline. If we are in a Y pulse our “Price Pulse (PP) Theory” will issue a sell signal if Y completes and we fall down through that trendline. Of course, the key here is whether X has really completed.

In summary bears should act on a move below 814.53. Anyone lucky enough to have good profits from the swing up off the March 6 low might want to book profits on a move below 814.53 also.

And the First Level of Support Is ....

“If” a move down has begun from last Thursday’s high then it can’t hurt to look at areas of support. Not surprisingly, the first technical area I have identified (792-796) is just above the last swing low of 791.37 on March 25. This support area is based on Fibonacci and Gann. The short moving average I like to use is projected to be in this area today as well.

Breaking the low of 791.37 is the current point that would mark a trend reversal and make last Thursday’s high a CIT. This would also mean it was the end of the Elliott Wave up from the March 6 low. Under our current roadmap a move below 791 would trigger a bearish stance with initial stops (the "I was wrong" point) at 831.

Roadmap Dead End?

Further rally in the cash S&P500 on Wednesday has pushed the wave iv’ scenario as far as it can go. We can’t exceed 804.30 under this scenario, which is just under the next Fibonacci cluster (805-809). Any break of 804.30 and the alternate wave count discussed yesterday becomes the new roadmap. Elliott is the roadmap used to map how we get from one point to another. The destination right now (next Level 5 PRP) is one more new low (below 666) before a potentially large multi-month rally can unfold in equities.

Note that the high on 3/16 and low on 3/17 have now been marked as Level 1 Price Reaction Points. The Elliott Wave from the 3/6 low can not be deemed complete until either the Level 1 PRPs show a trend change or a CIT is reached.

Time

While we wait to see whether 1370.6 will hold or not I will change my focus to “time”. Gann said that this was most important. To start I will present a quick, simple idea.

Time is indeed the most important and Fibonacci is the key. As most know, 2.618 is an important Fibonacci number. In terms of time, this means that 26, 261/262, and 2618 time periods are also important. If you look at the cash S&P500 chart the time interval from the October 2002 low until the October 2007 high was not only a Fibonacci five years but also 261 weeks.

In my next few postings I will focus more on time relationships in building Elliott Wave counts.

Is Wave "D" Over?

The cash S&P500 rallied on Tuesday causing the question to be asked: "Has the D wave of our contracting triangle completed?" I have two scenarios that describe possible price action over the next four or five sessions. Here they are:

1) The rally that began Tuesday becomes a choppy sideways affair the rest of the week and never exceeds 1481.49 (we closed yesterday at 1471.49). We essentially bide time into early next week.

2) The rally that began Tuesday is either already over or ends early today without exceeding the 1495 level. We then fall hard into Friday of this week breaking below 1439.29 (target of 1429) in the process. We then bounce into early next week.

Both scenarios can actually cover situations where the contracting triangle scenario unfolds to completion. However, only scenario 2 provides a situation where Wave "D" ends at a Fib ratio to Wave "B" and the entire triangle is in time symmetry with the move down between July 16 and August 6.

Therefore I choose scenario 2 for academic purposes. Not that it matters, for in either case the larger trend is now down and should remain that way over the next few weeks -- and yes, I know that the Fed will most likely cut rates next week.

That's Bull!

Yesterday's uptrending day put to bed the RSI question. We now have a confirmed technical "buy" signal on the daily chart. Yesterday's action has also formed a CIT (Change In Trend) in my work at the low. All of this is evidence (if not quite final proof) that the Elliott wave down from the high is done.

Since this wave was a five wave structure we should look for a counter-trend move and then a resumption of the decline. One place to watch for the counter-trend rally to end is at Fib retracements. Yesterday's high almost hit the 50% level and was stymied by our short term moving average (in red). Another key area of resistance is in the 1505 area. Here we find a Fib retracement line, two moving averages and the 180 degree Gann target up from the bottom.

We'll monitor the developments while we sit on the sidelines.

Fibonacci and Gann Work

The bounce from last Thursday's low was much weaker than I expected but it doesn't matter - as I am not touching this one with a ten foot pole! The Elliott count on today's chart reflects the recent events. The chart also shows two support areas (boxed) right under the market based on Fibonacci and Gann principles.

The fifth wave down might end in one of these areas either today or Wednesday/Thursday.