In the first part of this chart, during the steeply declining market up to mid January of 2009, we see in the upper pane that average down volume was significantly above up volume, as would be expected in a downtrend.  But for about two months before the March 2009 market bottom, there was little significant difference between these two curves, which means that the negative sentiment behind the market had dissipated, a leading indicator of the end of the downtrend.

From March through June of 2009, up volume was robustly aove down volume, consistent with the strong up market.  But, from July through September 2009, the two curves were nearly the same.  And from Oct. ‘09 all the way through to the top of the market in mid April of this year, down volume was strongly above up volume.  I take this as a very long leading indicator that the sentiment behind the market had turned negative.  From the market top in mid April up to mid August of this year, down volume was very strongly above up volume, consistent with the market downtrend.

But, starting in mid August, the gap has closed, the first time this has happened since last October.  This is a very significant happening, and to my eyes looks a lot like what happened in early 2009 ahead of the market bottom and turn around to the upside.  This could well be the indication that we are at, or close to, a major market bottom, from which an intermediate to long term up trend will emerge.

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Now look at the second chart here, weekly bars.  We see that the horizontal support identified on the daily bars chart is here quite prominently on the weekly bars chart also, going all the way back to that minor high in late August of 2009, and confirmed at each one of those gray arrows.  So, the fact that price is bouncing up from it again probably means this is a major trend reversal on this timeframe, too, making it likely that we are starting a new uptrend on this intermediate term timeframe.

This coming week, it is very important to watch what price does at the weekly R2 level, also marked on the daily bars chart.  Looking at the daily bars chart, it seems that price has such upward momentum that it will likely go right up through the weekly R2 level, confirming the new uptrend on both of these timeframes.  But in the somewhat unlikely event that the weekly R2 level holds and price turns down from there, then this new uptrend scenario would be in serious doubt.

In my next post here today, I’ll show how the accumulation/distribution behavior is now supportive of a new uptrend.

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Last week I said we needed to watch so see if price would stay above, or break below, the marked weekly support levels.  In the chart here, we see that this past week there was a definitive break below.  But, Wednesday through Friday, it seemed to have halted its decline.  There are no significant Midas curves in the vicinity of where it halted, so in this case, we have to look to other, traditional support/resistance methodologies for guidance.  Overall, the Midas curves are more plentiful and robust, but occasionally, such as now, others are needed.  We see that price halted at the horizontal support level defined by the May 25th low, and indicated on this chart here by the horizontal gray line.  So, at least for now, the decline on this short term timeframe has halted.

So far, price is remaining far below any of the resistances above it, so there’s no indication, so far, of a trend reversal.

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In my last post, I said it was critical to watch how price behaves in the coming week w.r.t. the S1 level.  Now, on this new chart posted here, we see  that three times last week price penetrated S1, and on Friday the entire day was below S1.  And between those two times, price went up to S3 and turned down from it, S3 now acting as resistance.  So, we have price breaking support while holding resistance, the classic Midas definition of a downtrend.

In my last post I identified two timeframes within this one daily bars chart, the several weeks long one and the several months one.  The breaks below S1 last week show that we’re still in a downtrend on the several weeks’ timeframe, and in just a consolidation on the few months’ long one.

On Friday, price went down to, and bounced up from, the weekly support level marked there.  So, this is what we need to watch in the coming week.  If price lifts off this support, then a new, intermediate term (weekly bars chart) uptrend may be starting.  But, if price goes below those weekly support levels, then we’re simply in a downtrend on that intermediate term timeframe.

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In my last post, I said that the uptrend was weakening and may have topped, and indeed the market fell sharply this past week.  Price fell straight through both S3 and S2 while remaining below any resistance curves.  This is the Midas definition of a down trend – breaking supports while holding resistances.  The uptrend that was broken is the very short term one that was being followed by that three-fold hierarchy of support curves – S1, S2 & S3 – a timeframe of a few weeks or so.

Within this daily bars chart, which I have loosely called The Short Term, there is room to identify two different timeframes – a very short one of a few weeks, and a somewhat longer one of a few months.  Right now, we see that the very short term uptrend that started July 1st has ended, and it looks like, on this very short term timeframe, that a new downtrend may have started.

But look at what happened last Thursday.  Price gapped down, but came to a screeching halt right at S1, and on Friday it consolidated there.  Midas technique tells us that when price comes down to the S1 and doesn’t go below it, that indicates that we’re still in an uptrend, but on a somewhat longer timeframe.  So, we had a completed one-month uptrend within what may still be an uptrend on the several months timeframe.

In this coming week, how price behaves w.r.t. S1 is very important.  If price rises off S1 without having penetrated below it, that would indicate that we’re in an uptrend on the several months long timeframe.  And indeed if one wanted to trade on this timeframe, a rise off S1 would be a good long entry, with a stop just below S1.  (Caveat:  See my disclaimer!)

But if, in this coming week, price breaks below S1, that means that on the several months long timeframe, we’re just in a consolidation, one which actually started in June, and is defined by that gray horizontal line.

In future posts, I’m going to pay more attention to the two different timeframes that can co-exist on one chart.

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The first chart here is the short term, daily bars, chart of the S&P 500.  We see that this past week, price broke up through R1 (dotted), but stopped and turned down at a curve I’m calling R1 Alternate, which is launched from the April 15th high, which preceded the April 26th high.  Although one might not think that this alternate curve is very important, we see that it did perfectly capture the April 29th pullup in price, which establishes its importance.

Last Friday’s candle was a doji hammer, which bounced up off S3, the latest S curve in the hierarchy of support cuves tracking this current uptrend.  This implies there might be some strength in the next day or two.  So, we may see price challenge R1 Alternate again.

In the upper pane is the so-called Money Flow Index, which is really the volume weighted RSI, on which trenline analysis is often a leading indicator.  After having just touched overbought territory on July 27th, it has now formed a negative divergence with the price, an indication that the current uptrend is weakening.

The second chart here is the update of the accumulation/distribution condition – see my July 31st post.  Here we see that the gap between the down days and up days is widening, an indication of weakening market conditions.

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The first chart here is of the short term timeframe, on daily bars.  We see the uptrend that started July 1st is continuing along is a straightforward way.  Last Tuesday price hit R1 and turned down, establishing the first higher high of this uptrend.  Last Friday price came down close to S2 and turned up, so this may have established a higher low.

The second chart here is of the accumulation/distribution situation.  For definitions of the indicators and arguments I use here, see the June 5th post and its preceding ones.  The MVPT indicator is more or less tracking price, so its not telling us anything.  But look at the upper pane.  The average volume on down days is still greater than on up days, indicating continuing distribution, but the difference is closing rapidly.  If the curves do cross, putting green above red, that would be the first time that’s happened since last October, and would indicate that accumulation has started, a very bullish indication.  However, the present situation with these two curves is the same as it was in late March, where the difference almost closed, but then red took off again, showing continuing negative pressure.

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The first chart here is of the intermediate term timeframe, shown on weekly bars.  After bouncing up from Old R4 early this month, price has now broken above the S3/New R2 combo.  So, I’d say that the downtrend that started in April has now at least paused.  The most we can say right now is that it is in a consolidation.  It won’t be a new uptrend unless and until it breaks above New R1.

The second chart here is of the long term, monthly bars.  From a strictly Midas viewpoint, this chart shows a continuing downtrend, since price is breaking supports, S3 and S2, which remaining far below R1.  It’s interesting to note, though, that this month’s bar has bounced up from the 38.2% Fib level, which may indicate some weakening of this downtrend.

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On the short term, the daily bars chart updated here, we see that yesterday price definitively broke and closed above the weekly R2 resistance.  With this break, it has broken out of the consolidation between the lower two weekly R curve levels.  We can now identify the action since the beginning of July as an uptrend since it has a higher low and will have a higher high, and since we see that price did not break below the New S1 in the hierarchy of Midas support curves that’s tracking this new uptrend.

In the coming weeks, we should watch for how it behaves as it encounters R2 and R1 at 1113 and 1118.5 respectively, or the weekly R2 at 1142.  A turn down from one of them would not negate the new uptrend, rather, it would just establish the higher high.  The real test will come when the pullback gets down to the New S2; if it breaches that, then we’re back in a consolidation.

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The second chart here, daily bars, shows how nicely the resistance at the 1099 level took place, made even clearer by the nature of the candlesticks.  On this short term timeframe, I’d say we’re in a consolidation between those two red marked levels.

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