Monthly Chart - August 2013

Attached is the new monthly bar chart of the cash SP500 (bottom pane). The top pane contains the Relative Strength Index (RSI) and the middle pane the Composite Indicator. In the July monthly posting I pointed out a potential bearish divergence between RSI and the Composite Index. After August’s action we now have actual bearish divergence. This is the second of three requirements I have to turn the chart bearish.

The first requirement is to get a potential DeMark “sell” signal. In our case we had a 9-13-9 (labeled in black on the chart) “sell” signal generated in April 2013. However, note that price closed above the “signal abort” level of 1659.11 (horizontal cyan line) in July. This meant that the new high recorded in August aborted that signal so that it is no longer active.

Another DeMark “Nine” is shown in green at the May 2011 high. The subsequent Sequential countdown reached 13 in May of this year. Again, that is a potential “sell” signal. The “abort” level associated with this signal is shown by the horizontal cyan line above the market at the top of the chart at 1793.08. The third requirement I have before classifying a chart bearish is the triggering of a DeMark signal by a price flip. In this case we need to close September below 1630.74.

In candlestick parlance, August was a “Dark Cloud Cover.” Here is what Thomas Bulkowski (http://www.thepatternsite.com/DarkCloudCover.html) has to say about this pattern:

1. Reversals occur 60% of the time with this pattern.
2. It ranks 22 (out of 103) in performance which means that price has a tendency to trend after a reversal.

To me the above shows why a price flip is important before calling the action bearish.

Finally, the price pulses and waves. A cyclical bear market rally (from the 2009 low) within a secular bear market decline (from the 2000 high) is often composed of an ALPHA-BETA-DELTA sequence. The Alpha and Beta pulses in such a sequence are shown in red on the chart. These are what I call the ‘super long term’ pulses. The ‘long term’ pulses are shown in green. Creating an Elliott Wave count using the latter we can see a ‘Double Three’ pattern close to completion. Extremely interesting is that TDST Support (horizontal dashed green line) aligns with the ‘B’ wave of the A-B-C Zigzag from the October 2011 low.

Bottom Line: The monthly chart continues to edge closer to being classified as bearish. I put a 25% weighting on this chart (as I do with the weekly and daily). I have recently cut back to a 50% equity exposure. A price flip in September on the monthly would drop that down to 25% (assuming the weekly and daily stay bearish). Stay safe!

Presenting The July 2013 Chart

Attached is the new monthly bar chart of the cash SP500 (bottom pane). The top pane contains the Relative Strength Index (RSI) and the middle pane the Composite Indicator. Are there any signs of price exhaustion in this chart?

The RSI began 2009 in the area reserved for bear markets (<38 2013.="" 67="" a="" at="" bull="" but="" composite="" cyclical="" early="" exceeded="" for="" has="" high.="" high="" i="" in="" index="" is="" it="" level="" like="" made="" month="" move.="" new="" not="" now="" rsi="" run="" signaled="" the="" then="" this="" turned="" underway="" up="" was="" well="" when="">potential

bearish divergence. Is there anything more substantial for the bearish case?

Of continued interest is the potential 9-13-9 (labeled in black on the chart) “sell” signal generated by DeMark analysis. I use this signal in a conservative fashion – to me it is not activated until we get a price flip. For that to occur in August we would need an August closing price below 1597.57. However, now that price has closed above the “signal abort” level of 1659.11 (horizontal cyan line), a new high in August will abort that signal.

Another DeMark “Nine” is shown in green at the May 2011 high. The subsequent Sequential countdown reached 13 in May of this year. Again, that is a potential “sell” signal if it is triggered by a price flip this month.

The wave count derived from a DeMark-like analysis (see previous price wave series) has a potential Triple Three pattern ending once we complete the final “C” wave up from the June 2013 low.

Finally, the price pulses. A cyclical bear market rally (from the 2009 low) within a secular bear market decline (from the 2000 high) is often composed of an ALPHA-BETA-DELTA sequence. Both the Medium-Long and Medium sequences show us approaching the end of the Delta pulse. More potential price exhaustion.

Potential. Potential. Potential. The monthly chart is screaming “caution” and this is why, as a long-term investor and not a trader, I remain wary of equities right now. But “caution” is not the same as “sell” and so I can’t definitively say that the monthly chart is screaming “get out now.” But I feel like we are approaching the edge of a cliff.

Monthly Chart Update for June 2013

Attached is the new monthly bar chart of the cash SP500 (bottom pane).

Of continued interest is the pending 9-13-9 “sell” signal generated by DeMark analysis. I use this signal in a conservative fashion – to me it is not activated until we get a price flip. For that to occur in July we would need a closing price below 1569.19 on July 31. On the other hand, this sell signal would be negated on a confirmed and validated break of the 1659.11 level (shown by the horizontal cyan colored line). I will also be watching the Beta-X price pulse trendline on this chart. A confirmed and validated break would be a price pulse “sell” signal.

Also of concern on this chart is the fact that the Composite Index (top pane) has turned down in the same area as it did prior to two other major peaks during the run up from the 2009 low. Now, although the RSI (not shown) is at its highest level since that 2009 low, the composite is next. This is a bearish divergence.

Finally, the wave count based on the price pulses show we are near the end of a complete A-B-C Zigzag pattern. This is another reason I remain wary of equities right now.

A Monthly 9-13-9

While I wait to see if the Price Pulse Confirmation Line (see last few posts) gets broken on the daily chart it is always instructive to take a technical look at the newest higher level time frames. Attached is the new monthly bar chart of the cash SP500.

Of note is the pending 9-13-9 “sell” signal generated by DeMark analysis. I use this signal in a conservative fashion – to me it is not activated until we get a price flip. For that to occur in June we would need a June closing price below 1514.68. On the other hand, this sell signal would be negated on a confirmed break of the 1659.11 level (shown by the horizontal cyan colored line). Such a confirmed break will not happen in June.

Another reason to be very cautious regarding equities?

Elliott Wave Count SPX 5 Mar 2012

Bulls Back Out In Force!

The bulls were back out in force Monday as they rallied the cash S&P500 back above the short moving average. Is the pullback off of the 9-13-9 pattern already over? For what its worth, I’m not convinced -- yet. Even a new high doesn’t necessarily mean a return to the bull run -- it may just be a retest.

At this point I am not ready to change my near-term, bearish-leaning position. For one, even another strong rally today would not qualify the TD Supply Line (now at 1077.99). Secondly, the weekly Long moving average still has to be reckoned with (now at 1070.6). Before getting carried away by yesterday’s strength, let’s see what type of technical situation we have if we approach a new high.

Bottom Line: Although certainly not ready to call an end to the bull run from March, I do remain in the bear camp over the near-term, even with Monday‘s strong rally day. At this point it will take a new high to get me to consider turning bullish. 9-13-9 stop at 1084.05; Parabolic SAR at 1078.59. The point where I would say the bull run from March is in trouble is currently at 978.51.