Running Out of Steam in the Short Term?

Although momentum is slowing we had another up trending price bar Wednesday on the cash S&P500. We are now at day eight of a potential TD Sell Setup. The setup was perfected yesterday and so only a closing price today below 940.38 will prevent it from occurring -- this will be the next short-term item to watch for.

Right now the daily chart is bullish (with the most immediate upside target at 968) but we've now run up against the monthly short term moving average (see the June update post of July 4th) at 962. Any decline from here will be a pullback in the new up leg that began on July 8.

And the First Level of Support Is ....

“If” a move down has begun from last Thursday’s high then it can’t hurt to look at areas of support. Not surprisingly, the first technical area I have identified (792-796) is just above the last swing low of 791.37 on March 25. This support area is based on Fibonacci and Gann. The short moving average I like to use is projected to be in this area today as well.

Breaking the low of 791.37 is the current point that would mark a trend reversal and make last Thursday’s high a CIT. This would also mean it was the end of the Elliott Wave up from the March 6 low. Under our current roadmap a move below 791 would trigger a bearish stance with initial stops (the "I was wrong" point) at 831.

Weekly Chart Review for November 11, 2007

The weekly chart of the cash S&P500 index formed a downtrending price bar this week. As shown in the chart we were not able to hold support at the confluence of the short (red) and medium (blue) moving averages. The downward price pulse from the recent 1552.76 high continues.

On October 19th the weekly chart produced a technical “sell” signal when the RSI failed to confirm the price high. At this time we still don’t have a “buy” signal. My current Elliott count is that we are forming a corrective pattern from the July high. Furthermore, I believe that we are in wave “c” of that correction now.

What else do I believe about the S&P500?

1) We will hold the August low during the current correction.

2) That the correction will terminate by the end of the calendar year.

I have added two likely target zones to the chart for the end of the correction. The higher aligns with the 1413-1417 zone previously discussed.

Bottom Line. All of the above work helps to “frame” the price action but here is the true bottom line: With the weekly and daily charts on a “sell” signal I will remain on the equity sidelines.

Moving Averages

The cash S&p500 is having a hard time at resistance provided by the "red" moving average. Notice how this was also at a cluster of many open and closing prices between Aug 9-14. 1447 is also 180 degrees up (1/2 the circle) from the bottom.

There was also a negative reversal in the RSI chart yesterday at this resistance; target of 1399. I don't feel quite as confident in this signal as the last one since my other momentum indicator is not confirming. However; I do feel a pullback here would not be surprising. A pullback for a day or two would set us up for a run towards the blue and green moving averages.

That's Bull!

Yesterday's uptrending day put to bed the RSI question. We now have a confirmed technical "buy" signal on the daily chart. Yesterday's action has also formed a CIT (Change In Trend) in my work at the low. All of this is evidence (if not quite final proof) that the Elliott wave down from the high is done.

Since this wave was a five wave structure we should look for a counter-trend move and then a resumption of the decline. One place to watch for the counter-trend rally to end is at Fib retracements. Yesterday's high almost hit the 50% level and was stymied by our short term moving average (in red). Another key area of resistance is in the 1505 area. Here we find a Fib retracement line, two moving averages and the 180 degree Gann target up from the bottom.

We'll monitor the developments while we sit on the sidelines.