Holiday

I will be on Holiday until the middle of next week. Please note that any comments will not be moderated in a timely fashion. Take care!

Next Downside Target at 903

The cash S&P500 continued its downward move yesterday, confirmed the break below the TD Demand Line (thin solid green line on today’s chart) and reached its initial price targets of the intermediate Gann moving average (blue line). Next are the Demand Line and TD Trend Factor (not Propulsion as mentioned yesterday) targets at 903 and then the weekly Intermediate moving average and a Fibonacci level near 888.

One should not expect these targets to be reached without intervening up days. Especially with Friday (quadruple witching) fast approaching the volatility may increase dramatically here. The purpose of this blog is not to identify short term trading opportunities but rather focuses on the intermediate swings. I currently have the opinion that equities have started their most significant pullback since the rally from the March 6 low began. The “proof”, so to speak, will be a weekly technical sell signal which we have to wait until Friday for (but seems increasingly likely).

Administrative note: I will be on holiday until the middle of next week.

Bear Claws Seen

The cash S&P500 broke out of its recent range yesterday with a downtrending price bar. As long as the break below the TD Demand Line (thin solid green line on today’s chart) is confirmed today we have these initial price targets: the intermediate Gann moving average (blue line) at about 915; Demand Line and TD Propulsion targets at 903 and the weekly Intermediate moving average and a Fibonacci level near 888.

One of the reasons to watch carefully for Demand Line break confirmation before getting too bearish was laid out by a commenter yesterday. The TD 7-11 (or TD LV in DeMark’s New Market Timing Techniques book) indicator warns that we may bounce back today. Additionally, note that we made low yesterday by closing the gap on the daily cash chart between May 29 and June 1. Oftentimes these gaps can provide support.

Both the cash S&P500 and the CRB Index made major lows about the same time in March so I am monitoring the commodities closely. Yesterday we had the bearish price flip on that index to confirm technical “sell” signals and a TD Combo “sell". I am now leaning towards the view that equities have started their most significant pullback (even if we bounce higher today) since the rally off the March 6 low began. The “proof”, so to speak, will be a weekly technical sell signal. We have to wait until Friday for that, when we may also get a perfected TD Sell Setup on the weekly CRB chart.

CRB and Equities Topping?

Since the weekly TD Sell Setup was perfected on June 1 the market has gone sideways for nine sessions; Friday being one of them. This consolidating price action continues to be well depicted by the TD Supply and Demand Lines (the red and green dashed lines on today’s chart). The Supply line is at 955.58 but can not be qualified today while the Demand line is at 930.26 and would be qualified if broken.

Both the cash S&P500 and the CRB Index made major lows about the same time in March so I am monitoring the commodities closely. On Friday the RSI formed a bearish divergence with price generating a “sell” signal. We have had a TD Combo "sell" (now awaiting a bearish flip) on that index and the TD Sequential is on day 12 (of 13) towards a "sell". I suspect that the CRB and equities will reverse together, and the CRB is saying that development is imminent.

Weekly Chart Review

This past week is a perfect example of why one should not anticipate signals in the technical indicators. In my last weekly report I noted “This week we note that although the RSI (top pane) has confirmed the new price high by making a new high itself, the Composite Index (middle pane) is lagging. This is *potential* bearish divergence between the two indicators.” Of course I then proceeded to have the mindset that the signal would develop, expecting a decline to start any day. Needless to say there was no price decline over the past week and at this point we face the same *potential* bearish divergence between the two indicators.

Since the weekly TD Sell Setup was perfected on June 1 the market has gone sideways for nine sessions. As I stated last week “Without a signal I favor the pullback / consolidation view. With a signal I would favor a much deeper retracement (move lower).”

Will we get our technical sell signal over the coming week? Who knows? But one “tell” may be associated with the upward sloping dashed green line on the price chart. This line has served as a good proxy for the “demand” of equities over the past few weeks and is why Tom DeMark (TD) labeled it as the Demand Line. It will be a sign of weakness if the price action falls away from this line; indicating a fall off in demand.

If demand for equities does not fall off here recall that the next price target from the monthly chart is at the 970 level.