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.

Signals and Evidence

We have now reached bar 12 of an aggressive TD Sequential sell countdown. Please note that bar 13 can only form after a high greater than 1660.06.

Going forward, besides watching the aggressive sequential just mentioned, there is the Beta-X trendline and TDST support to watch. A confirmed, validated break of these levels would; of course, be bearish.

From a wave perspective … A move to a new high means that the action from May 22 is wave 2 in an upward trending pattern. A break below the April 18th low (1536.03) would imply that the rally from the 2009 low is complete as the “D” wave of an Expanding Triangle.

On any timeframe you can also use the RSI as a trend indicator. Right now the monthly, weekly and daily charts are all in uptrends. I remain wary that the rally from 2009 is complete but need more bearish evidence (as outlined in this post) before committing to that view.

Daily Chart Work

On the daily chart I track developments starting with the following data: The current price pulses (Intermediate Term), wave count, and applicable Price Pulse Trend Line (in blue) from the weekly chart. I then add the following info: Price bar movement (shown by purple lines on the price bars), Price bar trend changes (green circles), Price bar turning points (blue diamond symbols above or below a price bar), and the latest applicable Turning Point Trend Line (in green).

At this point I am looking for either a closing price below the Turning Point Trend Line or a new Price Bar Trend Change signal. When one of these occurs I will take my next analysis step. Recall that we are looking for a Trending Pattern (1-2-3-4-5) from the April 18^th low. Since this five wave pattern should end the entire rally from the 2009 low (see previous few posts), I am extremely cautious at this point. 

My next post will be after one of the two events described occurs on the cash SP500 index.

Headed Off at the Gap?

On Tuesday the cash S&P500 formed an “uptrending” price bar on the daily chart. This is where the bar’s high and low is both higher than the high and low of the trading bar preceding it. This type of price action raises the odds that Monday’s low was a Level 1 Price Reaction Point (PRP). If so it would mean that the short-term upward move I spoke of yesterday may well be underway. If so it should run its course over the next couple of trading sessions and as bears we don’t want to see such an up-move exceed the “I was wrong” point (stop loss if you will) of 832.98.

As an interesting Fibonacci point please note that the 779.81 low on Monday was at 127.2% of the 3/25-3/26 swing and a 78.6% retracement of the move from the 3/20 PRP Low to the 3/26 PRP high.

Overhead resistance (see today’s chart) lies in the gap from 812-813 and then again from 820-822 and 826-827. On the downside support remains as outlined yesterday.

My Elliott roadmap continues to have the view that we get a new low (below 666) before a potentially large multi-month rally can unfold in equities. As yesterday ended both the month and the first quarter I can tell you that both charts are showing continued bear trends and are still not exhibiting technical buy signals at this point.

Quarterly Chart Time

The yearly chart of the cash S&P500 left me with the question “Are we in wave ‘Five’ or wave ‘B of Four’?” Today I turn my attention to the quarterly chart. The last quarter of 2007 displays as an uptrending price bar with a lower close. The most recently completed price pulse (the blue lines on the price chart) went from the 2Q2006 low of 1219.29 to the 4Q2007 high of 1576.09. A new downward moving pulse began at the 1576.09 high.

The middle pane of today’s chart is the Elliott Wave Oscillator as described by Tom Joseph (http://www.esignallearning.com/education/marketmaster/tjoseph/default.asp).
Note that the oscillator peaked where we have Primary degree wave “Three” labeled in 2000. The oscillator then pulled back to the zero line giving a high probability signal that a wave “Four” was forming.

Now take a look at the RSI. Of importance is that the 40 level held during the pullback into the 2002 low. This indicates that even with such a large decline we are still operating within a larger bull market environment. This interpretation was confirmed when we broke back above the RSI 65 level in 2007. Of course, the bull market view was confirmed by price itself when we made a new all-time high during this year. Not shown on today’s chart is the Composite Indicator. It flashed a “buy” signal when it made a bullish divergence with the RSI at the 2002 low. As we enter 2008 we do not have a corresponding “sell” signal.

As mentioned yesterday, my Elliott counts are guided by the formation of price fractals. Also important are the CIT (Changes-In-Trend) points labeled with the green ellipses. The last CIT was at the 2002 low.

What about the wave count? The technical evidence supports the view that the preferred count should have the 2002 low as Primary Wave “Four”. From that low we are in the third wave up: intermediate degree wave (3) of Primary wave “Five”. The alternate count would have the 2002 low as Intermediate wave (A) of Primary “Four”. Under that scenario we are in minor wave c of Intermediate wave (B) of Primary “Four”.

Although we have two choices it is important to recognize that both counts indicate that a bearish move lies ahead. It will either be intermediate degree (4) of Primary “Five” or intermediate (C) of Primary “Four”. But how close are we to this bearish scenario? That is, how close are we to completing intermediate degree wave (3) of Primary wave “Five” or Intermediate wave (B) of Primary “Four”? I’ll take a stab at answering that question when I look at the new monthly chart in tomorrow’s posting.

Quick Elliott Update

Let's start the new month by reviewing the short-term Elliott Wave count. Turns out the low last Thursday was just the end of wave iii. Still watching the target "boxes" from the previous post.