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.

The SLOT

The working hypothesis is that the August 2 high marked a significant top. I am quite convinced that it ended the rally from the June 24 low. Does it also mark the end of the trending impulse wave from the November 2012 low? Here are some sage words from blogger/trader Leaf West: “Traders know that calling tops is a mug’s game, and that they should always assume that as price pulls back from a new high, that support will hold in the SLOT and that a new high will be made. It is at the point in time when price bounces from support but fails to break to a new high, where traders can then point to that previous high in price and mark that as a more important top. Price should then be expected to make a bigger wave structure in the opposite direction from that confirmed top.”

In West’s work, the SLOT is the 50-78.6% retracement area which I have drawn as a box on today’s chart. Note that one of the features I track is in that box: The next larger Beta-X trendline. A close beneath this line will raise the chances significantly that the trending impulse pattern from last November is complete.

Other items of interest from the daily chart:

1) RSI (top pane). Two readings below 38 will also point to the August high as completing the pattern from November 2012. The RSI is currently at 35.29; marking the first reading below 38.

2) TDST support (1588). Will it hold?

3) Composite Index (middle pane). This indicator is now at an extreme low. This implies that the “final” low for this decline is not yet in. Expect a bounce followed by lower lows.

Bottom Line: The chart is bearish. Let’s see how it develops over the coming days.

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!

SPX Daily Chart 3 Jan 12

Elliott Wave - S&P500 Cash Index - 9 Sep 10

Elliott Wave Built From the Ground Up

This latest version of the blog will describe my efforts on maintaining an Elliott Wave count on the S&P500 cash index.

I start by showing that we may have hit a fifth wave target in the impulse pattern that began at the February 9, 2009 high. The horizontal blue lines are Fibonacci targets for wave v" based on wave iii". The red lines Fibonacci targets for wave v" based on wave i".

Note also the similarity in time between wave i" and the proposed wave v". If this interpretation is valid the market should now begin an upward rally.

All chart notations will be explained over time and each daily posting will be limited in scope.