SPX Weekly Chart - 22 July 2011

     When sell sequential bar #13 recorded on February 18, 2011 the cash SP500 closed at 1343.01. On Friday we closed at 1345.02. Certainly we can agree that the last weekly sequential signal has led to a market consolidation (which has now lasted 22 weeks). Last week I said that the "generally sideways movement would continue" for a couple more weeks. Since last week ended higher, I guess that means this week must go lower! Is there support for this in the weekly chart? Let's take a look.
     After qualifying and confirming a break through the short (red) moving average the cash S&P's found support at the medium (blue) moving average (via an unqualified break) and rallied nicely last week. Now the TD Supply line (dashed red) looms overhead at 1351.78 this week. Unless we open above that level today we will not be able to qualify an upward break of that line this week; which tells me to anticipate supply entering the market. I also come to that conclusion when I see the RSI (top pane) continually losing strength while prices consolidate. For the bulls the moment of truth is at hand. The Derivative Oscillator (middle pane) slipped below zero shortly after the sequential signal was given in February and has stayed below it since. Look what happened at the May 6 (delta pulse) high: this indicator failed at the zero line. Are we about to fail at the zero line again?
     I think we might very well do so; if only because the action continues to develop according to the Price Pulse theory scenario outlined in my weekly chart posting for June 10. I repeat that here so you don't have to hunt for it:
     "Currently the weekly chart's price pulse scenario can be captured by these words from Tony Plummer's book "Forecasting Financial Markets: Technical Analysis and the Dynamics of Price" on page 109. "A short term sell signal is triggered as the x-wave falls below the bottom of the Beta-wave. However, the subsequent y-wave rally may abort the signal by rallying back above it; indeed, it may even  retrace close to the peak levels established by the alpha-wave and the delta-wave. A longer-term (or regenerated) sell signal is given when the z-wave penetrates below the bottom of the x-wave." The pulses are marked on the chart."
     Bottom Line: At this point there is no reason to abandon the price pulse model. The current 'y' pulse rally can move us to new highs but I don't expect that. Key will be the old sequential 13 risk level (shown by the horizontal cyan dashed line) at 1363.53 and the current supply line already mentioned. The allocation meter remains at +50%.