Monthly Review - July 2009

We had an “outside” bar with a higher close in July. The portion of the bar below the June close was a hesitation in the strong bear market rally from the March low. The rally then resumed and punched through the 923-930 target range calculated at the end of May as well as the 971 target and short (red) moving average. The next target up is 1012-1028.

The monthly chart perfected its TD Buy Setup in February and has worked out quite well. Since countertrend rallies usually only last about 4 price bars in time we have reached the period when we need to watch for the resumption of the downtrend.

Bottom Line: The monthly chart remains short term bullish but argues that longer term investors should remain wary of equities -- this is the first time the TD REI oscillator (top pane) has moved into overbought territory since 2007!

Bullish but More Cautious

It was a simple up trending day to new highs on Thursday …. Or was it? I think the picture just got a bit more complicated with yesterday’s price action.

We did have a qualified break of the TD Supply line (dashed red line cutting through yesterday’s price bar which I have mistakenly been calling the demand line the last few posts) at 982.09. That is step one in the process. Before we can project another large run up in price we need to see step two: the breakout must be confirmed. Confirmation may only occur today if we trade above 996.68.

Yesterday’s price action has adjusted the TD Demand Line (the upward sloping green dashed line) so that it sits at 983.39. A break below that line today would be qualified. However, even if qualified today and then confirmed next Monday it would only project a shallow retracement of the rally. Of more concern at this point is holding Wednesday’s low. If I have my price pulse cycles correct the rally should persist at least until next Thursday, and so any break of 968.65 (Wednesday’s low) should be taken as a sign that the larger Alpha pulse (shown in last Saturday’s posting) is complete and that a more significant pullback is possible.

Bottom Line: Still bullish but the odds of a more significant pullback within the ongoing rally are increasing.

Mild Pullback So Far; Bulls Holding Firm

In many ways the price action Wednesday resembled that of Tuesday: a down trending price bar on the daily cash S&P500 that finished well off the lows. Two days into this pullback and one can say that the bulls are holding up quite well.

For today I will be watching the same two price parameters as yesterday: downside support in the 956-960 area (Fibonacci level at 956 and the short Gann moving average (solid red line)) and the TD Demand line (dashed red line just above yesterday’s price bar) which sits at 982.09. A confirmed, qualified break of that line points to another large run up - but let’s see what happens.

Technical "Sell" Signal

We printed a down trending price bar on the daily cash S&P500 on Tuesday but finished well off the lows. With the lower close there is now bearish divergence on the daily chart between the RSI and the Composite Index; a technical sell signal to accompany the in-place TD Sell Setup.

The first support level I am watching is the Fibonacci level at 956; the short Gann moving average (solid red line) is heading that way quickly. Of great interest is the new TD Demand line (dashed red line just above yesterday’s price bar). A confirmed, qualified break of that line points to another large run up - but I am not going to count chickens before they are hatched!

Edging Higher

The cash S&P500 edged higher yet again yesterday as I continue to wait for a routine 1-4 price bar pullback in the index. Today’s chart shows both the Composite Index (top pane) and Relative Strength Index (RSI) (middle pane). A turn down in the RSI here will cause a bearish divergence between it and the Composite Index; a technical sell signal to accompany the in-place TD Sell Setup.

Uncomfortable With a Bullish Point of View

The cash S&P500 edged higher on Friday and we are now waiting to see whether a routine 1-4 price bar pullback occurs in the index. How do I feel about having a bullish view on equities over the coming couple of months? I quote John Hussmann (www.hussmanfunds.com):

“It's a lot like watching people scale across a tenuously secured rope bridge and get a nice meal at the center. You'd like to climb across and join them, but you know that too many things aren't right with the bridge, and it's not clear that the people who are eating will ultimately survive.”

Quick Weekly Update for July 26

It was an up trending week on the cash S&P500 that both confirmed the break of the current TD Supply line (downward sloping dashed red line on the price chart) and fulfilled the minimum target of 970.21.

Bottom line: I have a bullish view for the next couple of months as outlined yesterday. On the weekly chart the next upside target is in the 1015-1030 area.