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 This meant that the new high recorded in August aborted that signal so that it is no longer active.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!

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.

Intermediate Price Pulse and a Trending Pattern

To quickly summarize, my premise is that an Expanding Triangle pattern is forming in the cash SP500 from the 2000 high. Wave 'D' of that pattern is itself a Zigzag pattern from the 2009 low and is about to complete. The Monthly chart showed that Wave 'C' of the Zigzag is a Trending pattern (1-2-3-4-5) where we appear to be towards the end of wave '5'.

On the Weekly chart (below) we can see the Intermediate Term Price Pulses that make up wave '5' of the Monthly chart which began in June 2012. Once again we have the expected five wave Trending pattern of alpha-beta-delta-x-y. Note that pulse 'y' is still forming. In these Trending patterns the Beta-x trendline is the one to watch.

And so .... when pulse 'y' (wave 5) completes on this time frame it will also mark the end of the fifth wave on the Medium time frame, Wave C on the Medium-Long time frame and wave D on the Long time frame. A very deep sell off is then expected to unfold.

Next time I will introduce the daily chart.

A Trending Pattern In the Medium Term Pulses

My last post showed a Zigzag pattern (alpha-beta-delta price pulses) forming on the quarterly chart with the delta pulse beginning at the July 2010 low. In wave pattern terms the Delta pulse is synonymous to the 'C' wave of the Zigzag and should itself be a Trending pattern (five waves making higher highs and higher lows).

The chart of the Medium Price Pulses (using monthly bars) reveals this trending pattern (alpha-beta-delta-x-y).

Unlike Elliott Wave, the third wave (delta) in a price pulse trending pattern CAN be the shortest when compared to alpha and y. In such cases my early research indicates that alpha and y will very often be similar in length as they are now.

Since the Medium pulses show that the Zigzag from the 2009 low is nearly complete (in pulse 5 of C) we must be wary that the entire 'D' wave of the expanding triangle from 2000 is also nearly complete. The 'y' pulse (or fifth) on the Medium Pulse chart should itself be a trending pattern on the Intermediate Price Pulse chart. I will take a look at that in my next posting.

SPX Elliott Wave Count 23 Dec 11

Weekend Blurb

The rally from the March low continues. Last weekend I described five technical ideas that would/could “… lead to the weekly chart pointing to a pullback.” None of those events occurred. The up trend up must be respected until concrete evidence appears.

Enjoy the rest of the weekend while you ponder my latest Elliott wave count of this rally.

Brief Weekend Comment

This weekend I present another view on the longer-term Elliott Wave count on the weekly cash S&P500 from the all time high set in 2007. This count is now preferred to the one presented last weekend because the move up from March 6 now looks corrective (a zigzag) rather than impulsive. Either way I view it as further evidence that the equity lows are in for 2009; but not for the entire bear market (those will come next year). Yet another uptrending week has moved my objective trend rule to a “sideways to down” rating from “down”.

New Roadmap Still Points to Move Below 666

What a bullish day! With 804.3 broken we must conclude that the move down from Jan. 6, 2009 to the low on March 6, 2009 was a complete zigzag pattern. This triggers our alternate Elliott roadmap while keeping the view that we get a new low (below 666) before a potentially large multi-month rally can unfold in equities. Today’s chart shows that a large Expanded Flat pattern may be unfolding from the November 2008 low.

Under this scenario the cash S&P500 can’t move above 877.86. If it does it will imply that the low of the year is in and that the market has started a large fourth wave rally that will last into early 2010.

Next resistance can be found at 826-839 where both Fibonacci confluence and a Gann 180 degree up target exist. Two technical items to watch over the next few sessions: 1) The volume yesterday was lower than it has been in a few days and 2) The composite indicator fell while the RSI rose; setting up a possible negative divergence. Both of these developments indicate forthcoming weakness.

Stronger Than Expected Rally

Without further follow through to the downside yesterday I must question the underlying premises of my technical view. That view is that the market requires one more new low (below 666) before a potentially large multi-month rally can unfold in equities. To get that new low the roadmap being followed was that the current upward correction is an Elliott Wave iv’ which would be followed by wave v’ down to below 666.

It is crucial to my methodology that the current rally not exceeds the January 28 high of 877.86. If it did the overall view that a new low is required would be called into question. The roadmap that we are currently in a wave iv’ counter-trend rally would be blown out of the water if the January 21 low of 804.30 is broken. There is one scenario that would keep the overall view in tact but would require a change to the roadmap (Elliott count) on how we get there.

If wave iv’ overlaps wave i’ at 804.30 but doesn’t exceed 877.86, I would have to believe that the swings from the January 6 high are not waves i’-ii’-iii’ of an impulse but rather waves a’-b’-c’ of a complete Zigzag pattern.

I’ll explore that idea further if a break of 804.30 occurs or is imminent.