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.

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.

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!

A Bevy Of DeMark Indicators

Little has changed in the overall picture since my post of last Friday morning. An uptrending day moved the cash S&P500 right to the mentioned Gann target of 876. “Price Pulse (PP) Theory” continues on a “buy” signal unless the Beta – Z trendline (at 849.52 today) is violated (see chart from last Friday). As before, I refuse to get too bearish until I see a break in the price pulse trend, which right now requires a dip below 835.58.

Today’s chart shows that a TD (Tom DeMark) Combo “sell” signal has been reached! This indicator was developed to show when price exhaustion has been reached within a move; in this case it comes within our Elliott Diagonal Triangle (wedge) pattern. Aggressive traders can go short with appropriate stops (890.39 if you add Friday’s true range to Friday’s high). More conservative traders can use other entry techniques. For instance, TD Camouflage, TD Clop, TD Clopwin, TD Open and TD Trap have not yet generated sell signals yet.

The chart also shows the two most current Level 1 TD Lines. The supply line (in red) was broken but not qualified. The demand line (in green) sits at 845.59 and will be qualified if broken today. Breaking this demand line would be one place to go short. The target price on a break calculates out to 812.22. Finally, please note the DeMark REI indicator is still on a sell (generated last Tuesday; the stop loss being 883.27 which has not been hit yet).

Let’s see if we start down today.

Diagonal Triangle (Wedge) Completing?

Going into options expiration day the cash S&P500 went back into rally mode, making another uptrending price bar on Thursday. This puts the market back into (at least for the moment) a bullish position. It is now apparent that the Z pulse completed at Wednesday’s low and that an Alpha pulse is underway. The “Price Pulse (PP) Theory” is now on a “buy” signal unless the Beta – Z trendline (at 844.87 today) is violated. As before, I refuse to get too bearish until I see a break in the price pulse trend, which right now requires a break below 835.58.

Please note that the Level 2 Price Pulse (green labels) is about to complete a Delta pulse to the upside. This Delta pulse is forming an Elliott Diagonal Triangle (wedge) pattern and so tight stops (on long positions) are called for.

Targets for the end of the wedge are shown on today’s chart. 876 is a Gann target from the March 6 low and 882 to 885 is a Fibonacci cluster. I also note that the Level 2 TD (Tom DeMark) supply line that was broken yesterday was not qualified. This supports the idea of limited upside here. The last TD Anti-Differential remains the down arrow at Monday’s high and the DeMark REI indicator is still on a sell (generated Tuesday).

Currently Neutral

The cash S&P500 formed another downtrending price bar on Wednesday but this time with a higher close. Indeed, it looks like the bulls will not give up without a fight. We remain on a “Price Pulse (PP) Theory” sell signal but before I can get too bearish I need to see a break in the price pulse trend, which right now requires a break below 814.53.

So far the pullback from Monday’s high has been very shallow and didn’t even reach the Qualified Level 2 TD (Tom DeMark) Demand Line target of 834.97 (we got down to 835.58). Support remains in the 826-829 level. This support is provided by both Fibonacci confluence and two moving averages. As noted yesterday, since the Z pulse is fundamentally the weakest in the entire cycle we should watch it for hints about overall market health. So far the market continues to look more bullish than bearish here.

Time-wise, the odds are high that if a short-term low is still in the making it will come today. We can’t say the low is in yet; particularly since a TD (Tom DeMark) Anti-Differential down arrow has now appeared at Monday’s high.

The current Price Pulse based on Level 2 PRP’s is in a Delta pulse (green labels) from the March 30 low and gives permission to re-enter longs on a move above 864.31.

To wrap up: currently neutral. Bullish above 864.31; bearish below 814.53.