Daily Chart Bounce

The bullish divergence between price and the RSI at the August 21 low has led to a bounce. Otherwise, not much has changed since the last daily posting. I still have eyes on the TD Trend Factor target (purple line at 1614.62). Note it is in the SLOT (the 50-78.6% retracement area which I have drawn as a box on today’s chart) with the next larger Beta-X trendline (in orange). A close beneath this trendliine will raise the chances significantly that the trending impulse pattern from last November is complete.

Bottom Line: The chart, as far as my practical use of it for asset allocation, remains bearish. Technically it can be upgraded to neutral due to the bullish divergence.

Can't Rule Out a Rally Attempt Here

It’s not a surprise but it’s now official. The swing chart of the cash S&P500 index (the orange lines on the price chart that move in “step-wise” fashion) has turned lower for the first time since the March low. The index has also confirmed the break of 886 (the 23.6% Fibonacci retracement value). This points to a move towards the 846 level (the 38.2% Fibonacci retracement value); but we may not get there directly.

Even though yesterday’s decline officially turned the swing chart bearish the RSI (top pane of today’s chart) is still holding in the area where bull markets find support. If the rally from March is truly over then a break below 38 on the RSI will come. However, the bulls shouldn’t be expected to just give up on their hard fought accomplishments. If 38 is eventually broken it may be after another rally attempt. There are timing reasons to expect some kind of a bounce here over the next few sessions.

So far the answer to the question asked in Tuesday’s posting matches my “I don’t think so …” gut feeling. It appears that the currently in force Weekly technical sell signal (RSI/Composite divergence) with TD Sell Setup may take precedence over the perfected TD Buy Setup and technical buy signal; but let’s give this a bit of time to play out. In fact, there is a possibility that the composite index (middle pane) may form a bullish divergence with the RSI if we can rally here. This would create another technical “buy” signal on the daily chart.

Bottom Line: Even with a rally attempt I remain bearish on equities here. Overhead resistance lies at both the short (solid red) and intermediate (solid blue) moving averages and then again with the TD Supply Line (dashed red line).

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.

Watching Momentum

It certainly looks like the "c" wave up from the Aug. 16 low is complete. Now we have to watch for the development of legs "d" and "e" per our Elliott Roadmap (from an earlier post). Of course, the "c" wave may have ended the correction in which case a new pattern has already started. In either event I believe the market is trending downwards.

Over the next few days I will be watching momentum like a hawk. The chart at left shows the RSI (top) vs. Price (cash S&P500) on a daily basis. Will momentum follow price; or will price follow momentum; or what? So far price is leading and we'll be watching for any divergence to show up which may put a damper on our bearish leanings. The weekly and monthly views will be just as important and I'll post them over the next few days.