Supply and Demand

To a certain degree Thursday’s price action was the opposite of Wednesday’s. After starting lower prices ended near the highs of the session but ended up being classified as a downtrending day. I think it is fair to say that the past couple of sessions have been a consolidation and not much else. What we do know is that Tuesday’s low of 826.83 is now considered a fractal and Level 1 Price Reaction Point. This confirms that it is the end of the Beta pulse and that Delta is underway. As Delta is the strongest upward pulse we must respect the ability of the bulls to hold up prices here.

A good way to measure bullish capability is via the price relationship with the new TD “Supply” line shown on today’s chart (the downward sloping red line). If the cash S&P500 can open above that line today (852.55) expect the bulls to retest the high. Otherwise odds are that the bears will be unable to prevent a trip back towards the 825-827 area; our immediate downside target.On the other side of the coin, a move below the TD “Demand” line (the upward sloping green line) at 830.52 would target 779.26.

Bottom Line: Risk/ reward favors the bears here. Ultimately looking for a retracement of the March 6 to April 17 rally that goes below 780 but lets watch the supply and demand action for short-term market direction. I will update during the day via twitter if key lines are broken.

Consolidating?

After bulling their way to just back over the Beta – Z trendline the cash S&P500 kissed the underside of that prior support line goodbye and the bears made their entrance. Prices ended near the lows of the session but ended up being classified as an uptrending day.

Although I still believe that the market has begun a downward move from last Friday’s high I can’t say I think we will go down hard and fast here. The 825-827 area is still our immediate downside target although we’ve already been there once. In fact, as of Wednesday’s close there is a 66% chance that the Beta pulse completed at Tuesday’s low. If that is the case we may even attempt to move higher again over the next couple of days with last Friday’s high as or bearish “do or die” point.

Unless we have a large gap opening to the downside this morning we will not qualify the new demand line (green sloping line) or the 826.94 target (horizontal blue line) should we hit them today. This argues that a choppy sideways to down market over the next two days is the best the bears can hope for.

Bottom Line: Looking for a retracement of the March 6 to April 17 rally that goes below 780.

Bulls Fighting Back

The bulls have fought back after Monday’s sharp decline but the price bar formed on the cash S&P500 Tuesday is still classified as downtrending. We can also note that the April 17 high is now both a Level 1 Price Reaction Point and a fractal high. The decline since that point is a Level 1 “Price Pulse (PP) Theory” Beta pulse.

We touched (826.83) our first downside target (825-827) yesterday and then rallied higher. The slight break of the TD Trend Factor level was not qualified and so we must still use this level as our current downside target. In the short term the bulls are trying to get back to “kiss the underside” of the Beta – Z trendline that was broken the other day. That level is at 858.82 today. Whether we can rally this high or not I remain tilted to the bearish side here. Price Pulse Theory will not even consider the bullish view unless we can go back and make a new high.

Wedge is Broken

Yes we started down on Monday! The cash S&P500 sold off over 4% and formed a downtrending bar that generated a “Price Pulse (PP) Theory” “sell” signal when the Beta – Z trendline (at 849.52 today) was violated (see chart from last Friday). The price pulse trend itself turned bearish when we broke 835.58 and I have to be bearish at this point. Now it is time to look at downside targets.

As you know I don’t think we are going to new lows here but I do believe it will be a fairly deep retracement that goes below 780. That said we still need to take it one step at a time. Today’s chart shows that the first downside target lies at 825-827 and the second from 810-812. From a time perspective our first short-term low (Level 1 PRP) should come by this Thursday. As we hit each level we will want to see if the decline at that point is “qualified” or not. I don’t expect that we will go down in a straight line.

A Bevy Of DeMark Indicators

Little has changed in the overall picture since my post of last Friday morning. An uptrending day moved the cash S&P500 right to the mentioned Gann target of 876. “Price Pulse (PP) Theory” continues on a “buy” signal unless the Beta – Z trendline (at 849.52 today) is violated (see chart from last Friday). As before, I refuse to get too bearish until I see a break in the price pulse trend, which right now requires a dip below 835.58.

Today’s chart shows that a TD (Tom DeMark) Combo “sell” signal has been reached! This indicator was developed to show when price exhaustion has been reached within a move; in this case it comes within our Elliott Diagonal Triangle (wedge) pattern. Aggressive traders can go short with appropriate stops (890.39 if you add Friday’s true range to Friday’s high). More conservative traders can use other entry techniques. For instance, TD Camouflage, TD Clop, TD Clopwin, TD Open and TD Trap have not yet generated sell signals yet.

The chart also shows the two most current Level 1 TD Lines. The supply line (in red) was broken but not qualified. The demand line (in green) sits at 845.59 and will be qualified if broken today. Breaking this demand line would be one place to go short. The target price on a break calculates out to 812.22. Finally, please note the DeMark REI indicator is still on a sell (generated last Tuesday; the stop loss being 883.27 which has not been hit yet).

Let’s see if we start down today.

Brief Weekend Comment

This weekend I present another view on the longer-term Elliott Wave count on the weekly cash S&P500 from the all time high set in 2007. This count is now preferred to the one presented last weekend because the move up from March 6 now looks corrective (a zigzag) rather than impulsive. Either way I view it as further evidence that the equity lows are in for 2009; but not for the entire bear market (those will come next year). Yet another uptrending week has moved my objective trend rule to a “sideways to down” rating from “down”.