Using the RSI (top pane) as a trend indicator, a bear market was signaled on this time frame in September 2008. Of great interest is the fact that we have now turned down right in the area reserved for bear market resistance shown by the double red lines. That is, this indicator is currently saying that the rally from 2009 is most likely corrective in nature and that we may have run out of steam.
Another negative development on the monthly chart is the decline in the Derivative Oscillator (middle pane) over the past two months which has led to a bearish divergence with price. Previously, a 'failure at the zero line' (indicated by the arrow) by this indicator in September 2010 combined with the sharp fall from an extreme reading in December 2009 (while prices only moved sideways), was a warning for a sharp rally. That rally occurred and now the bearish divergence should be cause for concern.
The qualified break of the Demand Line provides a calculated objective of 1276.35 which was met in June. The TD Trend Factor target was 1270.41 (shown by the purple line) and was also met. On the monthly time frame the next support area is provided by the moving averages in the 1214-1225 area. Finally, let's keep in mind that the lower time frames are showing that the bounce up after meeting the monthly Demand Line and Trend Factor targets is still ongoing. I will cover the latest weekly chart by Monday morning.
Bottom Line: Although I think that risk to longer term investors (like myself) is growing, the monthly chart remains a bullish contributor in my work. That is, it does not negatively impact asset allocation towards the equity market at this moment. A break below the March low (as mentioned above) would change that situation.
