Monthly Chart - August 2013

Attached is the new monthly bar chart of the cash SP500 (bottom pane). The top pane contains the Relative Strength Index (RSI) and the middle pane the Composite Indicator. In the July monthly posting I pointed out a potential bearish divergence between RSI and the Composite Index. After August’s action we now have actual bearish divergence. This is the second of three requirements I have to turn the chart bearish.

The first requirement is to get a potential DeMark “sell” signal. In our case we had a 9-13-9 (labeled in black on the chart) “sell” signal generated in April 2013. However, note that price closed above the “signal abort” level of 1659.11 (horizontal cyan line) in July. This meant that the new high recorded in August aborted that signal so that it is no longer active.

Another DeMark “Nine” is shown in green at the May 2011 high. The subsequent Sequential countdown reached 13 in May of this year. Again, that is a potential “sell” signal. The “abort” level associated with this signal is shown by the horizontal cyan line above the market at the top of the chart at 1793.08. The third requirement I have before classifying a chart bearish is the triggering of a DeMark signal by a price flip. In this case we need to close September below 1630.74.

In candlestick parlance, August was a “Dark Cloud Cover.” Here is what Thomas Bulkowski (http://www.thepatternsite.com/DarkCloudCover.html) has to say about this pattern:

1. Reversals occur 60% of the time with this pattern.
2. It ranks 22 (out of 103) in performance which means that price has a tendency to trend after a reversal.

To me the above shows why a price flip is important before calling the action bearish.

Finally, the price pulses and waves. A cyclical bear market rally (from the 2009 low) within a secular bear market decline (from the 2000 high) is often composed of an ALPHA-BETA-DELTA sequence. The Alpha and Beta pulses in such a sequence are shown in red on the chart. These are what I call the ‘super long term’ pulses. The ‘long term’ pulses are shown in green. Creating an Elliott Wave count using the latter we can see a ‘Double Three’ pattern close to completion. Extremely interesting is that TDST Support (horizontal dashed green line) aligns with the ‘B’ wave of the A-B-C Zigzag from the October 2011 low.

Bottom Line: The monthly chart continues to edge closer to being classified as bearish. I put a 25% weighting on this chart (as I do with the weekly and daily). I have recently cut back to a 50% equity exposure. A price flip in September on the monthly would drop that down to 25% (assuming the weekly and daily stay bearish). Stay safe!

Presenting The July 2013 Chart

Attached is the new monthly bar chart of the cash SP500 (bottom pane). The top pane contains the Relative Strength Index (RSI) and the middle pane the Composite Indicator. Are there any signs of price exhaustion in this chart?

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bearish divergence. Is there anything more substantial for the bearish case?

Of continued interest is the potential 9-13-9 (labeled in black on the chart) “sell” signal generated by DeMark analysis. I use this signal in a conservative fashion – to me it is not activated until we get a price flip. For that to occur in August we would need an August closing price below 1597.57. However, now that price has closed above the “signal abort” level of 1659.11 (horizontal cyan line), a new high in August will abort that signal.

Another DeMark “Nine” is shown in green at the May 2011 high. The subsequent Sequential countdown reached 13 in May of this year. Again, that is a potential “sell” signal if it is triggered by a price flip this month.

The wave count derived from a DeMark-like analysis (see previous price wave series) has a potential Triple Three pattern ending once we complete the final “C” wave up from the June 2013 low.

Finally, the price pulses. A cyclical bear market rally (from the 2009 low) within a secular bear market decline (from the 2000 high) is often composed of an ALPHA-BETA-DELTA sequence. Both the Medium-Long and Medium sequences show us approaching the end of the Delta pulse. More potential price exhaustion.

Potential. Potential. Potential. The monthly chart is screaming “caution” and this is why, as a long-term investor and not a trader, I remain wary of equities right now. But “caution” is not the same as “sell” and so I can’t definitively say that the monthly chart is screaming “get out now.” But I feel like we are approaching the edge of a cliff.

Price Waves #4 - The Monthly Chart From The 2009 Low

Now let’s look at the cash S&P500 on the monthly chart from an objective wave view:

Starting from the 2009 low of 666.79 (which was a 150 period low) which was identified as the last low on the next higher time frame (Quarterly chart):

1. H greater than 12H: November 2009.

2. L less than 7L: June 2010. This means that W.1 up ended at the 1219.8 high of April 2010.

3. H greater than 20H: November 2010. This means that W.2 down ended at the 1010.91 low of July 2010.

4. L less than 12L: October 2011. This means that W.3 up ended at the 1370.58 high of May 2011.

5. H greater than 33H: February 2012. This means that the W.4 low ended at the 1074.77 low of October 2011.

6. L less than 12L: Not yet recorded. This means that W.5 up is still underway.

Now we note two developments: 1) W.4 overlaps W.1, and 2) W.3 is the shortest when compared to waves 1 and 5. These two developments are perfectly permissible under the TD D-Wave system but NOT under classical Elliott Wave. In order to align the two systems I propose that under such a structure, the TD-Wave labeled W.4 be relabeled as an “x” wave and the waves labeled as W.1; W.2; and W.3 be relabeled as W.A; W.B; and W.C.

The chart shows both the D-Wave (1-2-3-4) and Elliott Wave (A-B-C-X) labels.

Under Elliott Wave theory there exist both Double (A-B-C-X-A-B-C) and Triple Three (A-B-C-X-A-B-C-X-A-B-C) patterns. Going forward, in order to keep the D-wave synched with the Elliott wave, the D-wave 5 must; in Elliott terms, be either an A-B-C or an A-B-C-X-A-B-C pattern. Does it? I’ll continue explore this idea using the weekly chart in my next posting.

Daily Chart Recycles

The cash S&P500 resumed its rally without a price flip, moving above the 1692.51 level which gives us a new TD Setup which recycles our TD Combo and Sequential countdowns. Thursday represented Combo bar 10 and Sequential bar 6 based on the new active TD Setup (shown by the number 9 symbol on the price chart).

The DeMark recycle makes sense in a wave frame of reference also - it appears that we are now towards the end of wave 3 in a suspected five wave impulse sequence from the June 24th low. Note that Wave 3 is now equal in length to a 100% projection of Wave 1.

On the RSI chart (top pane) the indicator has poked to a new high for the move and is now above the 63-67 zone which often signals that a market is transitioning into a bear phase. At the same time the RSI is rising, note that the Composite Index (middle pane) continues to fall. In my ideal scenario going forward we get a fourth wave pullback and then the Composite forms bearish divergence with the RSI in the fifth wave as we reach a DeMark exhaustion signal. But for now, the daily chart must be deemed bullish.

A review of the weekly chart and Elliott wave musings this weekend. Cheers!

Weekly Update at the Summer Solstice

Although I have been yammering about support holding on the daily chart and a possible temporary low being made I don’t want anyone think I am a bull. No, not at all. In fact, I lean towards the view that the May high was the top of the bull run from the 2009 low. Note that I am not yet committed to this view - hence the question mark on the weekly price chart above (bottom pane).

My first reason for concern regarding the bullish case is the wave count. This is not an Elliott count but similar based on price pulses. We are close to confirming the end of a large Zigzag pattern from the 2009 low. This Zigzag is wave ‘D’ within a large Expanding Triangle from the 2000 high. If this view is correct then wave ‘E’ of the triangle will go below the 2009 low.

Next, there was a bearish divergence between the RSI (top pane) and Composite Index (middle pane) at the recent high. Additionally, we see that a TD Combo 13 sell signal was generated on May 10th and a TD Aggressive Sequential 13 sell signal on May 31st. I use these signals in a conservative fashion – to me they are not activated until we get a price flip. Such a flip occurred on June 14th. On the other hand, these sell signals can be negated. For the Combo signal such a negation requires a confirmed, validated break of the 1655.81 level (shown by the horizontal cyan colored line). Breaks of that line during the weeks of May 17th, May 24th and May 31st were subsequently invalidated. Bottom line: This chart is on a technical sell.

From a wave perspective … A move to a new high from here means that the action from May 22 is wave 2 in an upward trending pattern from the X-Pulse (wave 4) low. A break below the April 18th low (1536.03) would be the proof I need at this time to commit to the interpretation that the rally from the 2009 low is complete as the “D” wave of an Expanding Triangle.

Finally, at this time the break of the Beta-X trendline on the weekly chart is not qualified but should at least worry the bulls.