A Small Crack Appears In the Cash SP500

Since our last update on the cash S&P500 the Alpha pulse high has been confirmed complete as of the September 19th high. The FoxPulse1 chart has been updated (above) to reflect this.

Although this chart shows only the lowest level price pulses, there are times when signals will cascade upward across time frames. Although each upward pulse (Alpha, Delta, Y) in the series (Alpha-Beta-Delta-X-Y-Z) is making higher highs while the downward pulses (Beta, X, Z) are making higher lows, the “early warning” trendline (in orange) has been broken.

Adding to the concern is the fact that the recent high was accompanied by a technical signal. While the RSI (top pane) made a new high the Composite Index (middle pane) did not. This is bearish divergence. Those with a very low risk tolerance may want to get less bullish here. The line in the sand at both this and the FoxPulse2 level would be a break of the horizontal trend line (in cyan) at 1681.96.

A New Beginning - Just The Pulses

Bottom Line: My view has been proved wrong as we have made new highs.

It is time for a change. Why not? The time is ripe to focus solely on what I have been calling Price Pulse Theory. Beginning today it will be called FoxPulse and will be my sole focus. Besides having value in itself, this technique is unique (used only by me) and will allow me to look at other markets besides the equities.

The FoxPulse assigns bullish or bearish ratings to a market across five time frames. FoxPulse1 the shortest, FoxPulse5 the longest. How one uses the ratings is more of a money management issue. For myself, I just use a percentage (of funds available for that market) system. For example I will take a long position as such: 35% based on FoxPulse1; 30% FoxPulse2; 20% FoxPulse3; 10% FoxPulse4; 5% FoxPulse5.

The equity market (as represented by the cash S&P500) is bullish across all five FoxPulses right now. Here is FoxPulse1:

This is a bullish picture. Each upward pulse (Alpha, Delta, Y) in the series (Alpha-Beta-Delta-X-Y-Z) is making higher highs while the downward pulses (Beta, X, Z) are making higher lows. In this situation we want to watch two trendlines. The first, shown in orange, is the early warning line. A close below this level, accompanied by a technical signal, would turn this level bearish. Likewise, a break of the horizontal trend line (in cyan) would turn this level bearish without needing an accompanying technical signal.

Here is FoxPulse2:

On August 6 a bear signal was registered as the Beta-X trendline was broken with a bearish divergence between the RSI and Composite Index. A bull signal followed on September 9 when the peak of the previous Alpha pulse occurred. That bull signal is still in force unless we break below the Beta pulse low of 1681.96. This is the same line as in the FoxPulse1 chart.

Although not shown today the other FoxPulses (3, 4, and 5) are also bullish.

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!

We've Flipped

After completing a TD Combo countdown last Friday (shown in the chart), the cash S&P500 has produced: bearish divergence between the RSI and Composite Indicator as well as between the Derivative Oscillator and price, a break in the low level Beta-X trendline, and now a price “flip” (close less than the close 4 bars prior). The daily chart is now bearish. The only good news for the bulls was that we held 1681.86 yesterday. This allows for the possibility that another push higher is still possible before the trending impulse pattern from the June 24th low is complete.

The risk, or stop loss, level on the TD Combo signal is 1718.66. I would not be surprised to see that challenged over the next week or so even if we are at an upward exhaustion point.

Tipping Further ...

After completing a TD Combo countdown last Friday (shown in the chart), the cash S&P500 continues to tip towards triggering the potential “sell” signal on this time frame. With Combo or Sequential I prefer the conservative approach by demanding a price flip. That would occur on any close below 1706.87 today.

With yesterday’s decline we now have actual bearish divergence between the RSI and Composite Indicator as well as between the Derivative Oscillator (not shown) and price. Yesterday also produced an aggressive “sell” signal in the price pulse system as the Beta-X trendline was broken. Again, being conservative I want to see the Y pulse shown complete. This would currently take a move below 1681.86.

 

Bottom Line: A price flip today turns this chart bearish while a move below 1681.86 would show the trending impulse pattern from the June 24th low as complete.