SPX Elliott Wave Count 23 Dec 11

Delicately Poised

The cash S&P500 formed a downtrending price bar on Wednesday, retesting the prior 930 resistance area to see whether it has become support. So far it has held. I continue to look for a 1 to 3 day pullback (today would be day 2) followed by another thrust towards 970. Of major interest will be whether the weekly price bar closes lower. That weekly close is even more important now …

Two significant developments took place yesterday that demand attention. First, the Relative Strength Index flashed a bearish divergence with price (see upper pane of daily chart). Secondly, the 949 high is in Opposition to the 666.79 low recorded at the start of this rally in March and 950 is Square to March 6. This price action is a clear caution to think about protecting any profits generated by the rally from the March low and will force me to change my short-term view if we can not close higher on a weekly basis.

With the market poised at such a balance point the TD Supply (949.34) and Demand (902.95) Lines (dashed red and green lines on the chart) assume increased importance today. A move through either one would be qualified.

Bottom Line: I think we are nearing the end of the rally from March. A failure to close higher this week would lead to a multi-week corrective pullback. A higher close this week points to the rally extending to the 970 area where we have to watch for the start of a much deeper multi-week corrective pullback.

Monthly Chart Review - May 2009

It was an uptrending month as we continued the rally from the March low of 666.79. Note that there was a “perfected” TD Setup on the February 2009 price bar. Does this formation mark the completion of the bear market? I don’t think so as there was no technical “buy” signal in my key indicators – the RSI and Composite Indices. There is neither a divergence between price and the RSI (top pane) or between the RSI and the Composite (middle pane).

Without a supporting signal in my key indicators I am forced to interpret the action since the March bottom as a bear market rally. The question then becomes “how high will we bounce before the down trend resumes?” To answer this question I like to calculate targets using Fibonacci, Gann, TD Lines and TD Trend Factor; looking for areas where the techniques overlap. Note on the chart that we have pushed through the 23.6% retracement but it was not “qualified” in the DeMark sense. This makes me first focus on targets below the 38.2% retracement level.

That leads me to look at my Gann moving averages (red, blue and green lines). I then note that the short moving average (red) is sloping down to intersect the TD Trend Factor target of 973.83 (purple line) over the next month or so. It also must be noted that we are currently “stuck” at resistance provided by the TD Trend Factor of 922.54 and the TD Supply line projection of 925.99. This is the area that has led to a sideways moving market since May 8. Lastly I want to note targets from the Square of Nine: 1012 is conjunct the March low (and aligns with the higher 38.2% Fib level as well as the TD Trend Factor target of 1027.98). 971 and 930 are both Trine and align with the two previously discussed targets. I therefore feel comfortable with 930, 971 and 1012 as targets.

Once we get to a target it is time to check the next lower time frame for evidence of a reversal. We are at the first target now. I will review the latest weekly chart tomorrow.

Doji Week

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Although technically an uptrending price bar we really didn’t go much of anywhere this past week in the cash S&P500. In fact, the weekly candlestick ended as a Doji (opening and closing prices essentially the same). With prices now moving laterally for a couple of weeks we were also not able to follow through on last week’s break of the TD Demand line (dashed green line on today’s posted chart). Although the price projection of 837.81 still stands, our failure to break below 878.94 this week makes me wonder whether the bears can push this this market lower immediately.

One piece of evidence to support another bullish foray to the upside was presented by an astute reader of this blog last week. The idea is that although we have now reached a TD sell Setup (nine consecutive upward moving bars) on the chart the arrangement has not yet been “perfected”. Perfection requires that the high of setup bar eight or nine (or a subsequent bar) be greater than, or equal to, the highs of setup bars six and seven. As Jason Perl writes in his (excellent!) book on DeMark Indicators, “… as long as that situation exists, the risk is for a retest of the price high …”

Of course the bears have arguments on their side as well. Last week I wrote “The weekly TD REI … has also signaled a “sell” by dropping through 879.21.” That signal is still active. The 930 price high reached is also noted to be trine the 667 March low and now stands as a price fractal high.

Bottom Line: Is a retest of the high in the cards or are have we already started on our way down? I favor the latter interpretation based on my latest price pulse work, which I will discuss in my next post. I remain convinced that a deep retracement of the rally from March 6 has begun, but also believe that the lows for the year (though perhaps not the bear market) are in.

Enjoy your weekend!

Waiting For Confirmation of a Significant Top

An “outside” reversal day top was made in the cash S&P500 on Thursday. Is the high finally in? I vote “yes” but will let the price action confirm before I take any action.

The answer lies with another question: “Is the Level 1 Alpha Pulse complete?” The fact that a reversal day was made increases the odds that Alpha is indeed complete. At this point we will have “proof” of that fact if we break below Tuesday’s 897.34 low without first exceeding yesterday’s high.

I also note that we seem to be reacting bearishly after the TD Combo Sell Setup mentioned in yesterday’s post and the trigger of a TD REI “sell” signal when 903.95 was broken. Furthermore, the fact that the TD Supply line target of 943.17 has not been reached and the Composite Index / RSI non-confirmation are also bearish developments.

The only way the market can qualify the current TD Demand Line (at 891.41) would be to open above that level (quite doubtful). This piece of information suggests a bounce may be at hand.

Also of interest: 929 is trine the March 6 low in price. In time, 930.5 is square May 7. Yesterday’s high was 929.6.

Yesterday I put out a twitter tweet during the day announcing that the long trade had been validated per the draft trading plan and to raise stops to the trade entry level. Our first foray under the plan has ended up as a “draw” (of course there would have been commission charges).

A short position (not to exceed 3% of the account balance) would be taken on a move below 897.34 today. All such trades are hypothetical (based on the cash S&P 500; not a tradable contract) and do not constitute advice to buy or sell any instrument. Initial stop would be placed at the most recent high.

Decision Time

The cash S&P500 opened above the TD “Supply” line shown on the posted chart (the downward sloping red line) last Friday. On Friday I stated that “If the cash S&P500 can open above that line today (852.55) expect the bulls to retest the high.” That retest is on! And, as explained yesterday, whether we can break above 875.23 is crucial. Break above that level and the bulls may go on a stampede. Will we? My best guess is no but it is just an opinion. The price action today should dictate trading actions.

The current upward moving Delta pulse (from Tuesday’s low of 826.83) should complete by Tuesday and we are in the timing window now. There are a multitude of Gann targets and Fibonacci targets on the daily chart that lead me to stick with the bearish view here:

1) 876 (our high so far) is 315 (+360) degrees on the Gann wheel from 667 (the March low).

2) 877 is Sesquiquadrate March 6.

3) 878 is square April 17.

Those three Gann targets support the notion that we peaked on April 17. The next three items argue that we will not break the weekly Supply line of 875.23:

4) 875 is square April 27.

5) Fibonacci cluster from 871.5 to 873

6) Fibonacci cluster from 875 to 876.

However, perhaps the best indication that the bulls are failing here would be the negation of the TD Supply line break of last Friday on the daily chart. This would occur if we fail to go above Friday’s high today.

Bottom Line: We should let the price action dictate our stance here. I still favor the bearish view that ultimately looks for a retracement of the March 6 to April 17 rally that goes below 780. However that view will be put in jeopardy with a move above 875.23

Torn Between Two Trendlines

Wednesday saw the cash S&P500 form an “inside” price bar that moved from one (short; red) Gann moving average to the other (long; green). This price action makes it very likely (although not a certainty) that the X pulse from the 845.61 (April 2) high is over and that we are now in an upward moving Y pulse.

The ability to hold above the red moving average shows that the bulls are still kicking. Note that the bounce yesterday was also at a Fibonacci confluence zone (horizontal dashed lines). The next lower level of such support is at 796. The bulls may be still kicking; but are they getting tired? Are the bears about to grab the upper hand?

Two things to watch today: 1) the price action at the long moving average. Failure to move through it cleanly leans bearish. 2) The BETA – X trendline. If we are in a Y pulse our “Price Pulse (PP) Theory” will issue a sell signal if Y completes and we fall down through that trendline. Of course, the key here is whether X has really completed.

In summary bears should act on a move below 814.53. Anyone lucky enough to have good profits from the swing up off the March 6 low might want to book profits on a move below 814.53 also.

Price Pulse Theory

Tuesday saw a downtrending bar on the cash S&P500 that ended at the short Gann moving average (red line). If the uptrend from March 6 is to continue this moving average should provide support as it did from March 30 to April 1.

Another methodology that takes advantage of the Level 1 Price Reaction Points (PRP) within the data is “Price Pulse (PP) Theory” as first espoused by Tony Plummer. A complete PP cycle consists of six segments: alpha, beta, delta, x, y and z. Delta is usually the strongest upward pulse and Z the weakest. On the current daily chart a PP cycle began not at the low but just previous on March 3. That low is labeled Z. A PP “buy” signal was generated when the Delta pulse moved above the previous Alpha pulse high and is marked by the solid line at 724.12 with the bull icon. Interesting is the fact that the short Gann moving average also bottomed at this point.

After the cycle completed at the March 20 swing low a new cycle began. In this current cycle we first note that the Delta pulse failed to move price much above the alpha pulse high of March 26. Since Delta should be the strongest pulse in the uptrend this failure to strongly move prices should be taken as a warning. As explained yesterday we then had a negative divergence in the RSI. However; although weakness appears to be setting in, the theory will not trigger an outright “sell” signal unless the current X pulse moves below the Beta pulse low of 779.81.

Top Being Made on the Daily Chart?

The cash S&P500 began the week with a downtrending price bar. When combined with the "inside" day made last Friday, the April 2 high is now defined as both a fractal high and a Level 1 Price Reaction Point (PRP). Technically the daily chart looks toppy here as we have now put in a negative divergence with price on the RSI (see chart).

That being said, the up trend in the PRP’s (higher lows and higher highs) continues; and the end of the wave up from the March 6 low can not be “finalized” until that trend breaks. Right now it will take a move below 779.81 to do that.

I have added a couple of interesting Fibonacci levels (dashed green and blue horizontal lines) that align with the closing prices on two of the last three sessions and the 180 degree Gann target (solid horizontal red line). These resistance levels were drawn using closing prices of the previous swings from November 21, 2008 to January 6, 2009 and then January 6 to March 6. Perhaps even more interesting are the Dynamic Gann Lines (sloping orange) drawn from those same swing points. Note how they caught both the recent swing high and the previous swing low of March 30.

To recap: The chart is looking like a top is being made but I want to see the trend change before getting too bearish here.

And the First Level of Support Is ....

“If” a move down has begun from last Thursday’s high then it can’t hurt to look at areas of support. Not surprisingly, the first technical area I have identified (792-796) is just above the last swing low of 791.37 on March 25. This support area is based on Fibonacci and Gann. The short moving average I like to use is projected to be in this area today as well.

Breaking the low of 791.37 is the current point that would mark a trend reversal and make last Thursday’s high a CIT. This would also mean it was the end of the Elliott Wave up from the March 6 low. Under our current roadmap a move below 791 would trigger a bearish stance with initial stops (the "I was wrong" point) at 831.

Indicator Divergence Appearing

Looking at this morning’s chart we find the cash S&P500 just below a band of resistance from 825-845. Resistance is being provided via a confluence of Fibonacci levels (dashed horizontal lines), the 180 degree Gann target (solid horizontal line), and a favorite (the ‘long’) moving average (dark green). Is wave “c” ending at this resistance? Well ….

Yesterday’s lower close also points out the developing bearish divergence between the RSI (upper) and Composite (lower) indicators. I think that I would be tightening stops if I were a bull here.

From a time perspective; the current swing up from the March 6 low of 666 will most likely (68% chance) end by this Friday. A completion before Thursday (meaning either yesterday or today) would imply a quick move down below the March 20 low 766.20. Under our current roadmap a move below that level would trigger a bearish stance. What price action today would signal such an event? I think that either an inside price bar or a downtrending bar with a lower close would do it.

New Roadmap Still Points to Move Below 666

What a bullish day! With 804.3 broken we must conclude that the move down from Jan. 6, 2009 to the low on March 6, 2009 was a complete zigzag pattern. This triggers our alternate Elliott roadmap while keeping the view that we get a new low (below 666) before a potentially large multi-month rally can unfold in equities. Today’s chart shows that a large Expanded Flat pattern may be unfolding from the November 2008 low.

Under this scenario the cash S&P500 can’t move above 877.86. If it does it will imply that the low of the year is in and that the market has started a large fourth wave rally that will last into early 2010.

Next resistance can be found at 826-839 where both Fibonacci confluence and a Gann 180 degree up target exist. Two technical items to watch over the next few sessions: 1) The volume yesterday was lower than it has been in a few days and 2) The composite indicator fell while the RSI rose; setting up a possible negative divergence. Both of these developments indicate forthcoming weakness.

Time Targets

The cash S&P500 formed another uptrending price bar on Thursday as it pushed through resistance at the Fibonacci cluster from 732-733. Other than price resistance I like to calculate “time” resistance. Gann said that time was more important than price. I agree.

Just as price targets are calculated from previous Elliott waves so can time targets. In the current scenario the first few dates of importance fall out as March 13, 20, 30, April 6 and 13. However, just like the market should not overlap the wave i’ low of 804.3 in price, the current wave iv’ should not last longer than April 10 (associated with a Level 3 PRP).

Choosing amongst these dates is hard. One way is to use Level 2 and Level 1 PRP “due” dates to rule out some of the choices; but that doesn’t work in this case. Finally we can use the dates that “square” price in a Fibonacci sense. March 30 then becomes the choice. Not completing wave iv’ until March 30 while not going above 804 seems strange at this point. Keep in mind these techniques don’t always work! Let’s see what plays out one day at a time.

Time

While we wait to see whether 1370.6 will hold or not I will change my focus to “time”. Gann said that this was most important. To start I will present a quick, simple idea.

Time is indeed the most important and Fibonacci is the key. As most know, 2.618 is an important Fibonacci number. In terms of time, this means that 26, 261/262, and 2618 time periods are also important. If you look at the cash S&P500 chart the time interval from the October 2002 low until the October 2007 high was not only a Fibonacci five years but also 261 weeks.

In my next few postings I will focus more on time relationships in building Elliott Wave counts.

Moving Averages

The cash S&p500 is having a hard time at resistance provided by the "red" moving average. Notice how this was also at a cluster of many open and closing prices between Aug 9-14. 1447 is also 180 degrees up (1/2 the circle) from the bottom.

There was also a negative reversal in the RSI chart yesterday at this resistance; target of 1399. I don't feel quite as confident in this signal as the last one since my other momentum indicator is not confirming. However; I do feel a pullback here would not be surprising. A pullback for a day or two would set us up for a run towards the blue and green moving averages.

Reversal Day Bar!

Another volatile day in the market – perhaps a short-term selling climax? After falling a good 45 points the cash S&P500 roared back to finish positive on the day. It was a REVERSAL DAY: the market made a new daily low but closed above the prior day’s close and the current day’s open. The trend to new lows was not able to be sustained by the end of the day as the bulls were in charge at the close. The RSI has now confirmed the bottom by turning up and we have a technical “buy” signal in place.
Although we slipped past the point where “b” is 1.618 times “a” (it was 1.742) the market reacted quite violently near here and so I will stick with my Elliott interpretation of an Expanded Flat. Why was the market dragged a bit lower than the 1.618 level? Perhaps two reasons: We had a nearby Gann target from the August 8 high and the market was drawn to the 23.6% retracement level from the 2002 low! 1370.1 is the calculated figure, the low was 1370.6!

Conclusion: A buy signal is in place but I still believe the larger trend is down. Now I need to get to work on determining where the next significant high (the "c" wave in our expanded flat which will end the larger wave 2 or b) will be.

Another one of those thingys

The cash S&P500 made high exactly in the area of resistance mentioned in my last post. Accompanying that high was yet another Negative Reversal. The calculations show that the minimum target is 1438.35, indicating a retest of the recent low.

At this point I am counting the move up into Wednesday's high as wave "a". I won't be surprised if the current decline turns out to be the "b" wave in an Elliott Expanded Flat pattern. This interpretation, if correct, would imply a successful retest (even if we do get a slightly lower low) followed by another sharp leg higher before the bear trend continues.

That's Bull!

Yesterday's uptrending day put to bed the RSI question. We now have a confirmed technical "buy" signal on the daily chart. Yesterday's action has also formed a CIT (Change In Trend) in my work at the low. All of this is evidence (if not quite final proof) that the Elliott wave down from the high is done.

Since this wave was a five wave structure we should look for a counter-trend move and then a resumption of the decline. One place to watch for the counter-trend rally to end is at Fib retracements. Yesterday's high almost hit the 50% level and was stymied by our short term moving average (in red). Another key area of resistance is in the 1505 area. Here we find a Fib retracement line, two moving averages and the 180 degree Gann target up from the bottom.

We'll monitor the developments while we sit on the sidelines.

Fibonacci and Gann Work

The bounce from last Thursday's low was much weaker than I expected but it doesn't matter - as I am not touching this one with a ten foot pole! The Elliott count on today's chart reflects the recent events. The chart also shows two support areas (boxed) right under the market based on Fibonacci and Gann principles.

The fifth wave down might end in one of these areas either today or Wednesday/Thursday.

A TIME to Turn?

Yes, I have held a bearish view over the past few weeks as the cash S&P500 has moved sideways. I believe it is called "distribution".

Anyways, today's chart shows that yesterday's high was made at a confluence of a Gann Fan line ( the upward sloping lines from the June 7 low), a Gann price target (the horizontal solid green line), and the 94.1% Fibonacci retracement of the previous swing down.

Seems like a good point for a turn down to me.