A Countdown 13 Bar Shows Up

After surging higher during the first half of Monday the market drifted lower during the rest of the day. Now the question is … is there more upside to come? New highs? Or was that it?

A bit strange is that a TD Sequential sell countdown completed yesterday. I use the word strange because it has laid dormant for quite a while. The TD Sell Setup that kicked it off registered back on July 9th (see chart). A more recent TD Sell Set-Up just completed (bar 9) last Friday. Precedence goes to the completed countdown because it’s associated setup is larger than the current setup. The associated risk level is at 1718.66 (solid horizontal cyan line). As usual, this is step one of my three step signal process (see posting on the August 31 weekly chart for an example).

Step 2 requires a technical signal. While the RSI (top pane) went to a new high yesterday the Composite Indicator (middle pane) drifted lower. This formation is not quite bearish divergence. Step 3 requires a price flip which has also not yet occurred.

As for the most recent sell setup, the associated risk level is at 1697.98 (horizontal dashed cyan line). It is interesting that we did not close above that level yesterday, ending at 1697.60 on the cash S&P500.

Bottom line: my view that we fail to make new highs, reverse and go on to make lower lows remains intact – but just barely. If yesterday marked an exhaustion event we should see some downside action today.

View About To Be Put To The Test

As I pen this the S&P500 futures are rocketing upward to the tune of 18.8 points. An equivalent move at the cash market open (added to Friday’s closing price) would put us at just below the August high. In other words, today’s action will be quite telling on whether my current narrative is worth its salt. Let’s see what happens.

Price Pulse. It is now clear that the August 28th low marked the end of Beta pulses on both the intermediate and medium-term levels. Particularly with the strong futures this morning it is instructive to recall that the Price Pulse theory indicated that the market had once again turned bullish when the previous Alpha pulse high (1669.51) was broken on September 9th. At this point it would take a move below the August 28th low (1627.47) to turn it bearish.

3) TD Sell Set-Up. The cash S&P500 is on bar 9. The associated risk level is at 1697.98 (horizontal dashed cyan line).

Bottom line: While the daily chart remains bearish under my technical parameters, Price Pulse Theory indicates that the rally has further upside potential in both price and time. However; my position had been that we would fail to make new highs and then reverse and go on to make even lower lows. That interpretation is about to be put to the test.

How Goes the Rally Now?

And so the rally continues; although at this point I am still happy to categorize it as counter-trend. Here is an update on the information I am currently watching:

1) Interplay between price and the indicators. Instead of both indicators, only the composite index (middle pane) is threatening a negative reversal right here. Last time we looked the RSI was higher than it was on August 23 while price was not. This potential negative reversal was never actualized as the RSI never turned down. However, it still is leading price higher. More concerning is that the composite indicator is now higher than it was at the August high. Again, if this oscillator was to turn down from here we would have a bearish negative reversal in place. We’ll have to watch and see if that happens.

2) Price Pulse. It is now clear that the August 28th low marked the end of Beta pulses on both the intermediate and medium-term (see weekly update) levels. As mentioned in the last daily post, Price Pulse theory indicates that a move above the previous Alpha pulse high (1669.51) turns the market bullish on the intermediate level. It will now take a move below the recent August 28th low (1627.47) to turn it back bearish.

3) TD Sell Set-Up. The cash S&P500 is on bar 5. Bar 9, if we were to reach it, would occur this Friday.

Bottom line: While the daily chart remains bearish, Price Pulse Theory indicates that the rally has further upside potential in both price and time. Even if a stronger rally develops here I expect it to fail to make new highs. We would then reverse and go on to make even lower lows.

A Retest of the High

The strong rally from the June low has continued unabated, broken through Fibonacci resistance and now challenges the all-time high in the cash S&P500.

It must be emphasized that the TD Sequential “sell” signal has not been triggered on this chart; a price flip being required after bar 13 was reached on July 8th. Now it must be noted that any move above the 1692.51 level will give us a new TD Setup and recycle our sequential countdown.

From a wave perspective … A move to a new high dramatically increases the odds that the action from May 22 is simply a corrective pattern in a larger upward trending pattern. I will take a look at the wave pattern over the coming days.

May High Marks End of Upswing on the Weekly Chart

There have been a couple of developments on the weekly chart since I last commented on it in the June 23rd posting. First, at that time (June 23rd) the break of the Beta-X trendline (see above chart)  was not yet qualified. It was qualified the following week but immediately invalidated by the rally this past week. As a bear I want to see this break qualified and validated as we go forward. Do note, however, that the Beta-X trendline may now be acting as resistance to the price action.

A second development is that the TD “Buy” Setup count has reached 4. I use a Buy or Sell Setup count of 4 as a “swing” chart filter. The resulting swings are then used to determine the trend and are shown on the attached chart in orange. Thus the trend is now down from the May high.

These two developments keep me negative on the weekly chart at this time. The June 23rd posting explained the technical weakness (bearish divergence between the RSI and Composite Index; a TD Combo 13 sell signal and a TD Aggressive Sequential 13 sell signal) present in this chart; and none of that has changed.

Bottom Line: I believe the May high will hold and that we are in the initial stages of a new equity bear market. Any move above the May high will prove me wrong.

DeMark Levels of Interest From Monthly Chart