A Weekly Price Flip

The most significant development since my last posting was the price flip on the weekly chart. This triggered the pending TD Combo sell signal (see posting of 3 June) AND the more recent TD Aggressive Sequential sell signal made the week of May 31. With the weekly now on a “sell” my exposure to equities has been duly lightened.

As far as the daily chart goes (pictured above) not much has changed. We remain on bar 12 of an aggressive TD Sequential sell countdown. Please note that bar 13 can only form after a high greater than 1660.06. We also held above the Beta-X trendline on June 13 and TDST support has yet to be challenged.

SPX Weekly Chart - 10 Jun 2011

     Please keep in mind that we will have a monthly price flip if we close June below 1327.22. Such a flip will trigger the already completed TD Combo and sell counts on the monthly chart. These signals would then occur with bearish divergence between price and the composite index, and between price and the derivative oscillator. In sum, the risk of a significant top in equities remains high.
      As stated last week, the weekly chart is also quite weak right now - if not outright bearish. Note that we have now met the calculated minimum objective (1282.73) associated with the qualified break of the TD Demand Line (upsloping green line on chart). Last week's price action also confirmed the break of the short (red) moving average and we've now closed below the medium (blue) moving average. We'll see if we can confirm that break this week. The TD Trend Factor target is just below the market at 1265.68.
     The weekly chart's price pulse scenario can be captured (p. 109) by these words from Tony Plummer's book "Forecasting Financial Markets: Technical Analysis and the Dynamics of Price": "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.
     I am expecting the upcoming y pulse (wave) to begin before the March low is broken and for it to lift prices above the peak of the alpha pulse but perhaps not the delta pulse.
    Bottom Line: The allocation meter is now at +50%. If meeting the TD Line objective and the Trend factor target are not enough then the March low is the next target. Any break below the March low of 1249.05 will cause me to lighten my position even further as the allocation meter would fall to +25%.

Price Pulse Update

On the Friday before the long Memorial Day Weekend the cash S&P500 formed an “inside” day. We have bounced off the 878.45 TD Trend Factor level twice and also failed to move back below the current TD Demand line (now at 879.95). Is the decline from the May 8 high over? Is a retest of that high in the cards or are we going to continue on our way down? To help answer that question I present the latest Price Pulse chart today as the picture is becoming clearer using that methodology.

The current configuration of the BLUE level pulses from the 5/5 low is along the lines shown in Figure 13.14 (Example iii) of Tony Plummer’s book, Forecasting Financial Markets, Technical Analysis and the Dynamics of Price (1990 edition). This is a “multiple top” formation and “… involves the market bouncing away from a particular price level at least twice.” In our case this is the 925-930 area where the Alpha and Delta pulses peaked. Mr. Plummer then writes “Sometimes, a reversal in the Beta-wave may be so slow in developing that the y-wave helps to create a ‘triple top” …” Therefore I think we may still bounce a bit higher in the y-wave now underway from last Thursday’s low but then we will continue the decline in the subsequent Z pulse. I think the May 8 high will wind up being the top of the rally from the March low.

The higher levels of the price pulse support this view. On the GREEN level we have now broken below the Beta – Z trendline drawn across the 3/30 and 5/15 lows. The break of that line is bearish and lets us know that the larger, upward moving RED level Alpha pulse has completed on 5/8. This is the price pulse that aligns with the rally from March. We are now in the larger downward moving RED Beta pulse.

The experimental trade position remains short from 897.34 (5/12); stop & reverse at 930.17. Lower the stop & reverse to 924.61 on a move below 879.61 Tuesday.

A trend-continuation short trade would be taken Tuesday ONLY if the open is less than 879.95. If taken the initial stop would be placed at 896.66. Calculated price objective: 834.79.

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.