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S&P Futures: Some DeMark Indicators Are Neutral, but Emphasis Is on the Bearish

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A look at the S&P pit contract on a daily and weekly timeframe, using the Sequential and Combo Countdown indicators.

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In response to my Friday post on Minyanville's Buzz & Banter (subscription required), in which I looked at the S&P 500 (INDEXSP:.INX) in DeMark terms, a sharp-eyed Minyan suggested that DeMark indicators are in fact rather bearish on the market. He highlighted the fact that Tom DeMark suggests looking at the S&P pit contract (SP1) as the most reliable of the SPX-related instruments, and that the TD Sequential Countdown indicator (as opposed to the TD Combo Countdown I referred to in Friday's Buzz) is quite bearish on multiple timeframes.

First off, let me clarify that the gist behind my Buzz was to convey that the market seems on thin ice here. The fact that the Combo Countdown signals expired before the market turned down doesn't mean that selling pressure isn't there. That's why I pointed out that the daily and weekly Buy Setup counts are very early in the process.

But for more perspective, it is certainly worthwhile to revisit the Combo and Sequential Countdown indicators applied to the SP1 chart. Here are the highlights of each in daily, weekly, and monthly timeframes.

First, the Sequential Countdown:
  • Daily: The last completed Sequential Countdown printed on July 9 and the associated risk level is set at 1724.00, which obviously remains in force. There is also an unfulfilled Qualified TD Prop Exhaustion Up target at 1726.10. The current (incomplete) Sequential Countdown is on bar 10. Wednesday's close printed a price flip and Friday printed bar 3 of the TD Buy Setup; TD Reference Close Down level was broken on Wednesday and confirmed by the lower open/lower low on Thursday. Bottom line: neutral to bearish. Wednesday's price flip reversed the trend, but before we can state that a new trend is in place, we need to see a completion of the TD Buy Setup, preferably together with a break of the current TDST Level Down at 1573.30. The unfulfilled TD Prop Exhaustion Up target should not be dismissed yet.
  • Weekly: Friday printed a bearish price flip, i.e. bar 1 of a TD Buy Setup. The active Sequential Countdown is on bar 12. To complete the countdown, price will need to print a close higher than the high of two bars prior, and the high of bar 13 must be equal or higher than 1650.60. The bigger concern for the bulls should be that the price flip confirmed a TD Megaphone 7 Sell signal, an indicator that I find very telling on longer time frames. Bottom line: neutral to bearish with an emphasis on bearish because of the Megaphone Sell signal. Bulls may be far more vulnerable if/when they use up their "juice" to hold the line around 1650.60 and complete the Countdown.
  • Monthly: Sequential Countdown completed in May and the associated risk level is at 1794.80. To print a price flip, it needs an August close below 1592.20 or a September close below 1629.00. Bottom line: neutral until a new Buy or Sell Setup is established.

Next, the Combo Countdown:
  • Daily: The last completed Combo Countdown Sell printed on July 23 and the associated risk level is set at 1704.50. The risk level has not been violated, but there was no price flip within 12 bars of the July 23 countdown completion. So the Countdown Sell is no longer valid. There is an unfulfilled Qualified TD Prop Exhaustion Up target at 1726.10. Wednesday's close printed a price flip and Friday printed bar 3 of the TD Buy Setup; TD Reference Close Down level was broken on Wednesday and confirmed by the lower open/lower low on Thursday. Bottom line: neutral to bearish. Wednesday's price flip reversed the trend, but before we can state that a new trend is in place, we need to see a completion of the TD Buy Setup, preferably together with a break of the current TDST Level Down at 1573.30. The unfulfilled TD Prop Exhaustion Up target should not be dismissed yet.
  • Weekly: The last completed Combo Countdown Sell printed on May 17 and the associated risk level is set at 1709.40. The risk level has not been violated, but there was no price flip within 12 bars of the May 17 countdown completion, so the Countdown Sell is no longer valid. Friday's close printed a price flip, i.e. bar 1 of a new TD Buy Setup; as noted earlier, on the weekly timeframe, the bigger concern for the bulls should be that the price flip confirmed a TD Megaphone 7 Sell signal, an indicator that I find very telling on longer time frames. Bottom line: neutral to bearish with an emphasis on bearish because of the Megaphone Sell signal.
  • Monthly: The last completed Combo Countdown printed in March with the associated risk level at 1628.60. The risk level has been broken on a qualified basis, therefore the Combo Countdown signal is no longer valid. A Perfected TD Sell Setup printed in April, so August is the last month in which we can expect a response to the Sell Setup or else it too expires. As above, a price flip requires an August close below 1592.20. Bottom line: neutral to bullish as long as there's no price flip this month.
To summarize, looking at the S&P pit contract on a daily and weekly timeframe, the Sequential and Combo Countdown indicators as well as the other indicators discussed above paint a neutral to bearish picture, with an emphasis on bearish. The monthly charts are neutral to bullish. The key levels I'm focusing on before getting far more bearish are an August close below 1592.20, or a September close below 1629 (either would print price flips on the monthly chart), and a break of daily TDST Level Down at 1573.30, especially if the break is qualified.

Twitter: @FZucchi

Editor's Note: At Minyanville we often argue that markets and stocks are driven by four primary attributes: the fundamentals, the technicals, the structural, and psychology. In this weekly piece, trader Fil Zucchi will attempt to digest these four measures to come to actionable recommendations, but with a couple of twists: Rather than relying on standard technical analysis, he will examine the technicals through the lenses of "DeMark" indicators. And rather than highlighting straight entry and exit points for stocks, he will use options to gain long / short exposure, control risk, and generate cash flow. Investors should note: This column will be written 1-2 days prior to publication, so by the time it appears the prices of the securities mentioned may have changed.
Position in SP1
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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