Next week comes the eye of the storm in terms of earnings season and what DeMark indicators are saying. Either the market starts cracking then, or it re-energizes in search of new targets. From the November breadth thrust numbers and the New Year CBOE Volatility Index (VIX) collapse, I surmised that the market could be running an Elliott wave three which using a wave one equals wave three projection, it will run out of steam slightly above S&P 500 (SPX) 1500. That’s just the minimum as normally they run much farther than that. At the same time, DeMark indicators are showing multiple clusters of exhaustion points and if the market has enough juice, the four hour DeMark will come around next Tuesday ( Monday is an US holiday ) adding to the clusters.
Along with the primary DeMark indicator, TD Sequential, DeMark places much emphasis on his price objective targets called TD Trend factors. They are all based off Fibonacci ratios but unlike traditional Fibonacci levels related to the markets, DeMark has placed certain qualifications on it before they can be applied. The main qualification is the market must move 5.556% in either direction to determine a starting point. Once the starting point has been determined, levels of various degrees can be calculated. For the upside, multiples of 1.0556 are used and the downside, multiples of 0.944 are used. SPX is about 10 points shy of its target while the Nasdaq Composite (COMPQ) and the Russell 2000 (RUT) have reached their objectives.
This iPath DJ-UBS Livestock ETN (COW) is a great example of how DeMark’s work captures the rhythm of price exhaustion. It’s coming into a potential exhaustion day right now.
The market is decidedly bullish. DeMark indicators tells you when that bullishness ends and it’s all coming together. If liquidity continues to be pumped into the market, a whole new count and new targets will have to be considered. Next week is a critical time for the bears. Maintaining short positions at 75% with long hedges. Today is options expiration and open interest pinning action suggests a close near SPX 1480. I’m ready to unhedge and press the shorts if market goes above SPX 1385 or below 1375 next week. (updated mid trading day)