SPX Weekly Chart - 15 Apr 2011

     After registering a countdown '13' bar the cash SP500 has not exceeded that high for nine weeks, moving essentially sideways as the standard deviation channel (in purple) shows. Recall that if the countdown is going to lead to a change in trend it should become apparent within twelve bars and so time is running out. There is nothing that says a completed countdown must result in a change in trend, and so all we get may be a sideways consolidation.
    It is of note that during the run up from the March 18 low to the retest of the February high the RSI (top pane) moved right into the area reserved for resistance (parallel red lines) in bear markets and then failed at the early April high as price did. The RSI then dropped down to 62 and has now returned into that same resistance area. The RSI has NOT signaled a bear trend on this chart yet, but often times such a signal will begin with a reversal in this area. The bears now want to see price decline with the RSI slipping back below the 63 level. Such an event would signal a bearish divergence between the two points indicated by the arrows.
     Of course there are always two sides to the story. Bulls will want to see the TD Supply line (in red) broken with the RSI pushing up above the 67 level. But I think the burden is still on the bulls here.They were unable to push price above that supply line last week. For this week the only way to qualify an upside break through that line will be to open Monday at or above 1337.49.
     Bottom Line: The weekly chart continues in a bearish position and will need a confirmed break of the 1363.53 risk level to regain a bullish position.

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).

Weekly Update for June 28 - A Cautious Bear

Since the weekly TD Sell Setup was perfected on June 5 the market has been undergoing a pullback/consolidation. A technical “sell” signal was given on June 19: Although the RSI (top pane) has confirmed the new price high by making a new high itself, the Composite Index (second from the top) did not confirm. Since the RSI then turned down this is a *confirmed* bearish divergence between the two indicators.

So far we have seen a bearish price flip and a move down to the short moving average over a three week time period. A typical pullback/consolidation runs 1 to 4 price bars after a perfected signal. The question now is whether the rally that began in March will resume. Or will we have a deeper/longer correction due to the added technical sell signal? I favor the latter scenario but note that this week’s price bar is a Doji candlestick where the opening and closing prices are essentially the same. A Doji is a reversal candlestick. In particular, the Doji formed on our price chart is classified as a “dragonfly”.

The following discussion is from the excellent candlestick section of stockcharts.com:

“Dragon fly doji form when the open, high and close are equal and the low creates a long lower shadow. The resulting candlestick looks like a "T" with a long lower shadow and no upper shadow. Dragon fly doji indicate that sellers dominated trading and drove prices lower during the session. By the end of the session, buyers resurfaced and pushed prices back to the opening level and the session high.

The reversal implications of a dragon fly doji depend on previous price action and future confirmation. The long lower shadow provides evidence of buying pressure, but the low indicates that plenty of sellers still loom. After a long downtrend, long black candlestick, or at support, a dragon fly doji could signal a potential bullish reversal or bottom. … Bearish … confirmation is required for both situations.”

One confirming factor to consider is volume. The Dragonfly is a better indicator of a bottom if volume increases; and it did last week – we had the highest volume since May 15 (bottom pane).

So where does this leave us? In my opinion we will only get confirmation that the uptrend has resumed if we can qualify and confirm a break of the current TD Supply line (downward sloping dashed red line on the price chart). For next week the line sits at 951.26.

The buzzing of this week’s Dragonfly has made me a more cautious bear and has caused me to look up. But unless we get confirmation by confirming a break of the supply line I will go back to eating my salmon.

Weekly Chart Review

This past week is a perfect example of why one should not anticipate signals in the technical indicators. In my last weekly report I noted “This week we note that although the RSI (top pane) has confirmed the new price high by making a new high itself, the Composite Index (middle pane) is lagging. This is *potential* bearish divergence between the two indicators.” Of course I then proceeded to have the mindset that the signal would develop, expecting a decline to start any day. Needless to say there was no price decline over the past week and at this point we face the same *potential* bearish divergence between the two indicators.

Since the weekly TD Sell Setup was perfected on June 1 the market has gone sideways for nine sessions. As I stated last week “Without a signal I favor the pullback / consolidation view. With a signal I would favor a much deeper retracement (move lower).”

Will we get our technical sell signal over the coming week? Who knows? But one “tell” may be associated with the upward sloping dashed green line on the price chart. This line has served as a good proxy for the “demand” of equities over the past few weeks and is why Tom DeMark (TD) labeled it as the Demand Line. It will be a sign of weakness if the price action falls away from this line; indicating a fall off in demand.

If demand for equities does not fall off here recall that the next price target from the monthly chart is at the 970 level.

Weekly Review - May 31

It was an “inside” week to close the month of May – the weekly action screaming emphatically that it is drawing a line after its vigorous rally from the March low. The first item of interest on the chart is the TD Combo “buy” signal and the perfected TD Buy Setup at the March low. These bullish indications were confirmed by bullish divergence with price in both the RSI and Composite indicators (top and middle pane respectively). So what was viewed as a countertrend rally on the monthly chart was certainly a buying opportunity when viewed through the weekly prism.

As noted in yesterday’s post the market has reacted to the 930 target area by moving sideways for three straight weeks. Can we see any signs of a reversal here or is just a consolidation before moving to the next higher target? One applicable item to note has been discussed in this blog over the past week: The need for the weekly chart to move above 930.17 in order to “perfect” the TD Sell Setup recorded the week of May 22. Glancing at the technical indicators it does appear that we *may* get a bearish divergence between the RSI and Composite if we were to renew the rally; but that is only a possibility at this point. We shouldn’t even think about turning bearish on this market (according to the weekly chart) until we surpass 930.17.

In the coming week the current TD Supply Line can only be qualified by an open above 926.73 -- and this is unlikely. After dropping below the TD Demand Line the week of May 15 there has been no follow-through to the downside, indicating that there has not been a shift in demand. In fact, the supply and demand lines are equal at 927 – no wonder we have been trading sideways at this level! We should also take note that the Demand line stands at 964 next week. This is close enough to our 971 monthly target where we will have to watch for an instance of price coming back to “kiss” the bottom of the broken trendline before selling off.

Bottom Line: Although the weekly chart is not yet calling for a reversal of the rally from the March lows it is suggesting we pay close attention. Over the coming week we need to watch for a move above 930.17 and see how the market reacts to it.

Aside: TD D-Wave says the March low was the bottom of wave 3 or C from the October 2007 high.

Hmmmm.... Looking More and More Bullish

Although the cash S&P500 formed a downtrending price bar on Thursday it can not be counted as a bearish session. In fact, the failure to move below 879.61 indicates that the Z pulse has already completed; and this has bullish implications for the immediate future. A break to the upside might well be in the offing from the triangle pattern shown in today’s chart.

The boundary lines on the triangle are similar to the current TD Lines that price action continues to be squeezed between. The Demand line sits at 883.31 along with the intermediate moving average (see yesterday’s chart). The Supply line has become steeper after yesterday and now lies at 909.54. We must open above the supply line to qualify it while to qualify the demand line only requires a break below it. A “breakout” to the upside from this triangle formation would most likely run until 8 or 9 June.

The experimental trade position remains short from 897.34 (5/12). Due to the failure of the z pulse the stop & reverse should be lowered to 924.61.

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!

Weekly Update

A downward trending week on the cash S&P500 has triggered several negative events. After breaking through TDST Resistance at 890.4 the week ending May 8, the break was not qualified as we failed to make a higher high this week. The S&P also negated the previously in-force TD Supply line bullish price objective by breaking below the TD Demand line this week at 895.42. We will qualify a price projection to 837.81 by breaking below 878.94 next week.

The weekly TD REI (top pane of today’s chart) signaled a “sell” by dropping through 879.21.

Bottom Line: I believe that a deep retracement of the rally from March 6 has begun, but continue to think that the lows for the year (though perhaps not the bear market) are in.