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.

Monthly Chart Update for June 2013

Attached is the new monthly bar chart of the cash SP500 (bottom pane).

Of continued interest is the pending 9-13-9 “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 July we would need a closing price below 1569.19 on July 31. On the other hand, this sell signal would be negated on a confirmed and validated break of the 1659.11 level (shown by the horizontal cyan colored line). I will also be watching the Beta-X price pulse trendline on this chart. A confirmed and validated break would be a price pulse “sell” signal.

Also of concern on this chart is the fact that the Composite Index (top pane) has turned down in the same area as it did prior to two other major peaks during the run up from the 2009 low. Now, although the RSI (not shown) is at its highest level since that 2009 low, the composite is next. This is a bearish divergence.

Finally, the wave count based on the price pulses show we are near the end of a complete A-B-C Zigzag pattern. This is another reason I remain wary of equities right now.

Daily Chart Work

On the daily chart I track developments starting with the following data: The current price pulses (Intermediate Term), wave count, and applicable Price Pulse Trend Line (in blue) from the weekly chart. I then add the following info: Price bar movement (shown by purple lines on the price bars), Price bar trend changes (green circles), Price bar turning points (blue diamond symbols above or below a price bar), and the latest applicable Turning Point Trend Line (in green).

At this point I am looking for either a closing price below the Turning Point Trend Line or a new Price Bar Trend Change signal. When one of these occurs I will take my next analysis step. Recall that we are looking for a Trending Pattern (1-2-3-4-5) from the April 18^th low. Since this five wave pattern should end the entire rally from the 2009 low (see previous few posts), I am extremely cautious at this point. 

My next post will be after one of the two events described occurs on the cash SP500 index.

The Medium-Long Price Pulses

In yesterday's posting I discussed the Expanding Triangle pattern seen in the Long Term Price Pulses. That work showed that wave 'D' of the triangle has been unfolding in the cash SP500 since the 2009 bottom. The last leg of the triangle, 'E', will end the pattern and move the market to what now seems like an absurdly low value. When will this 'E' wave begin? Why, when the 'D' wave ends of course!

Every leg of a triangle pattern is itself a corrective pattern. In the case of wave 'D' the Medium-long price pulses (as seen on the Quarterly chart) show it to be a Zigzag correction (an A-B-C pattern).

The implication is that the Zigzag, and wave 'D' of the Expanding Triangle, will end when the Delta pulse completes. The Delta pulse, or wave 'C' of the Zigzag, will itself be an Impulse pattern composed of five pulses. That pattern is revealed on the Monthly chart which I will show tomorrow.

SPX Wave Count 27 Jan 2012

Elliott Wave Built From the Ground Up

This latest version of the blog will describe my efforts on maintaining an Elliott Wave count on the S&P500 cash index.

I start by showing that we may have hit a fifth wave target in the impulse pattern that began at the February 9, 2009 high. The horizontal blue lines are Fibonacci targets for wave v" based on wave iii". The red lines Fibonacci targets for wave v" based on wave i".

Note also the similarity in time between wave i" and the proposed wave v". If this interpretation is valid the market should now begin an upward rally.

All chart notations will be explained over time and each daily posting will be limited in scope.

Quarterly Chart Time

The yearly chart of the cash S&P500 left me with the question “Are we in wave ‘Five’ or wave ‘B of Four’?” Today I turn my attention to the quarterly chart. The last quarter of 2007 displays as an uptrending price bar with a lower close. The most recently completed price pulse (the blue lines on the price chart) went from the 2Q2006 low of 1219.29 to the 4Q2007 high of 1576.09. A new downward moving pulse began at the 1576.09 high.

The middle pane of today’s chart is the Elliott Wave Oscillator as described by Tom Joseph (http://www.esignallearning.com/education/marketmaster/tjoseph/default.asp).
Note that the oscillator peaked where we have Primary degree wave “Three” labeled in 2000. The oscillator then pulled back to the zero line giving a high probability signal that a wave “Four” was forming.

Now take a look at the RSI. Of importance is that the 40 level held during the pullback into the 2002 low. This indicates that even with such a large decline we are still operating within a larger bull market environment. This interpretation was confirmed when we broke back above the RSI 65 level in 2007. Of course, the bull market view was confirmed by price itself when we made a new all-time high during this year. Not shown on today’s chart is the Composite Indicator. It flashed a “buy” signal when it made a bullish divergence with the RSI at the 2002 low. As we enter 2008 we do not have a corresponding “sell” signal.

As mentioned yesterday, my Elliott counts are guided by the formation of price fractals. Also important are the CIT (Changes-In-Trend) points labeled with the green ellipses. The last CIT was at the 2002 low.

What about the wave count? The technical evidence supports the view that the preferred count should have the 2002 low as Primary Wave “Four”. From that low we are in the third wave up: intermediate degree wave (3) of Primary wave “Five”. The alternate count would have the 2002 low as Intermediate wave (A) of Primary “Four”. Under that scenario we are in minor wave c of Intermediate wave (B) of Primary “Four”.

Although we have two choices it is important to recognize that both counts indicate that a bearish move lies ahead. It will either be intermediate degree (4) of Primary “Five” or intermediate (C) of Primary “Four”. But how close are we to this bearish scenario? That is, how close are we to completing intermediate degree wave (3) of Primary wave “Five” or Intermediate wave (B) of Primary “Four”? I’ll take a stab at answering that question when I look at the new monthly chart in tomorrow’s posting.