ADX Line Turns Down

The cash S&P500 formed showed follow-through to the upside yesterday and another uptrending day was formed on the daily chart. Volume was also strong Thursday and so it looks like a real “bounce” is underway. In fact, the ADX line (see chart) has now turned down. Wilder says “There is nothing wrong with exiting the system trade when this occurs and reentering in the direction of the next crossing of the DI lines or reentering if the ADX line again turns up.” That is, exiting shorts for now and waiting for further developments. We’ll keep an eye on it.

We start the day right at the top of the band noted as overhead resistance yesterday. This same band now becomes support and lies in the 1253-1258 area. A break below that would indicate we may have to retest the recent low. Above the market there is minor resistance at 1270-76 and much stronger resistance in the 1292 area.

As far as the new-fangled “Supply & Demand” system goes, it is neutral. The methodology will not take a trade to the long side here since the trend is down. Although price broke through the resistance line yesterday it was not a “validated” break in accordance with DeMark rules. We would need to see a “validated” break before considering any long position based solely on trendline breaks.

Retracement Beginning?

The cash S&P500 formed a strong rally (uptrending) day on the daily chart. Disappointing (to those of the bullish persuasion) must be the fact that volume was lower than on Wednesday. More positive was the fact that; at least for now, it seems that price has held firm at critical long term support in the 1188-1204. Although the ADX nudged higher again it does lag just a tad so we’ll see what it does over the next couple of sessions. A technical “buy” signal has been generated on the daily chart and the weekly will see it as well if we can continue this rally over the next two days. But that is only an “if” at this point.

Since the weekly trend is down (Using the D-Wave on the weekly chart to define trend) any rally (from Tuesday’s low) at this point must be considered as only a retracement of the move down from the May high. If I had to pick one target zone for price at this point it would be 1342-1351.

We start the day in a band of overhead resistance which stretches up to 1260, which is associated with the current resistance line. Above that we are clear to run at 1290. Once again support below the market is in the 1188-1204 area.

To continue with Wilder’s Parabolic Stop and Reverse methodology, the stop on any remaining shorts would be just above the market at 1250.65.

Bears Should not get Over Confident

The cash S&P500 formed a downtrending day on the daily chart. It was another volatile ride intraday as we fell quickly into the area I described as critical longer term support yesterday, 1188-1204. We bounced strongly from the top of this zone but fell again into the close. The ADX rose yet again – what else can be said except that the downtrend remains intact.

Using Wilder’s Parabolic Stop and Reverse methodology, I would continue to keep a very close stop on short positions at 1253.86. We have now had five trading days with an RSI below 32 and so the odds of a strong rally beginning should not be underestimated. Once again support below the market is in the 1188-1204 area.

Stretching Until it Snaps?

Another day, another downtrending bar and another move up in the daily ADX value (see chart). There is not much more to add except maybe to note that 1225 is 120 degrees down on the Gann wheel from the September high. If we continue down then 1188-1204 is critical longer term support.

At the present time I would continue to keep a very close stop on any short positions. The 2-day high of 1257.27 is an objective choice although money management rules should govern the ultimate choice.

Trend is Down but Price Looks Exhausted

Last week ended with a volatile day but when it was all said and done we had another downtrending day. The unrelenting downtrend continued as the ADX value nudged higher yet again and the practical result was a whipsawed long position in the still under development “Supply & Demand System”. From a long position at (theoretically) 1245.25 on Thursday’s open to a “Stop and Reverse (SAR)” point being hit on Friday at 1240.80, it was an unsuccessful trade against the trend.

I will implement the idea of trading only in concert with the higher level trend by instituting the following advice from Thomas DeMark who recommends strongly: “ … that a longer-term wave perspective of price activity be followed as well, in order to serve as an overlay defining the market’s direction. In other words, once the environment is identified, only accept trades that are in concert with the trend.”

This morning’s chart shows the D-Wave installed on the weekly chart of the cash S&P500. There are eleven waves up from the 2002 low; that is, the trend is clearly up until the October 2007 high. When the August 2007 low was broken the trend changed to down and we are in the third wave down now. This definition of trend is objectively derived and would have allowed only long trades until August 2007 and only short trades from that time until now.

At the present time I would keep a very close stop on short positions as price may well be exhausted (at least temporarily) on the downside here. That is, a bear market rally may be imminent. The 2-day high of 1257.65 is an objective choice although money management rules should govern the ultimate choice.