Since the August 9 low we have been tracking a rally in the cash SP500 from the deeply oversold condition it found itself in coincident with a TD Buy Setup. Yesterday the market opened right at the short (red) moving average and the risk level (1204.08)associated with the sell setup on the hourly chart. These two factors acted as expected - resistance. The question now is whether they also marked an end to the rally and the beginning of a retest of the low.
One tool useful in deciding if the retest is "on" is the Range Expansion Index (REI) shown in the top pane of today's chart. Since the index moved above the overbought level (horizontal blue line) Monday with a higher close, a sell signal will now be triggered with a break of 1178.86. Note that this is generally the previous resistance area provided by TD Trend Factor and the fibonacci level. If previous resistance doesn't become support it is a sign of a weak market. This level did provide support yesterday. If the bulls can continue to hold this level and then get through the short moving average the door is open to 1245.
Bottom Line: I favor the bearish case here and believe that we need to retest demand (the low) again before any sustained bullish rally can get underway. The current demand line (dashed green line) reflects the "retest level" well. The allocation mix meter remains at +25%.
Note: I will not be posting until August 28 - vacation time!
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