Weekly Analysis

By: TheWaveTrading | Sun, Sep 25, 2011
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I was aware that the price pattern from the August low was a corrective affaire.

I knew that price was setting up a bearish pattern that would lead to lower prices and I highlighted 3 potential corrective patterns: Double ZZ, Triple ZZ and Triangle.

Honestly on Tuesday, ahead of the FED day we did not have a clear ending pattern in place yet, but we had a warning with SPX eod Shooting Star and negative divergences of momentum and breadth indicators.

On Wednesday SPX had 2 potential s/t patterns: a Flat or a Double Top with the "line in the sand" at 1188.68 (gap fill).

Bears took the lead when price dropped below the support line.

The Double Top had a target of 32 points, which was exceeded on Thursday with a gap down, and go.

On Thursday the Dow tested the August lows while, DJ Transports Russell 2000 and KBE made new lows.

On Thursday eod we had extreme oversold readings of s/t breadth indicators that were suggesting a potential rebound.

On Friday we got a choppy session with a modest rebound.

The Triple ZZ pattern: If this is the correct count then the corrective rebound from the August low is completed.

SPX Triple ZZ option
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We still have a potential alt count: a larger Flat

But it order to become the primary count it needs price back above 1180

SPX The Flat Option
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The structure of the sell off from Tuesday's eod is impulsive; in addition we have new sell signals from the daily MACD and breadth indicators like the Summation & the BPI Index therefore now odds are larger that the corrective pattern from the August low is completed and we should expect the third down leg from the July's peak.

The potential long term count:

SPX A Potential Long Term Count
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The top was put in place with a triangle and a truncated wave (Z)

At the July's top we can have a Major top = wave (X) or an Intermediate top = wave (A)

I am sure there several ways to count this structure therefore I continue to stress that I prefer to focus on the price structure from the July's peak which should unfold a corrective (ABC) or an impulsive (12345).

So for the time being I am looking for a wave (C or 3) down.

With wave (1 or A) = 245.46 points as extension targets the range:

1 x 0.618 = 1069
1 x 1 = 974
1 x 1.618 = 823

At 973 we also have the 0.618 retracement from the Nov 2008 low.

This scenario implies that we should be getting at least a 5 - wave down leg off 1220.39, with the first one completed on Thursday.

Another potential scenario = ED wave (C) = 5 overlapping waves

SPX Ending Diagonal Wave Option
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For the short term:

With a 5 - wave down leg completed it is reasonable to expect a larger rebound next week with a target in the range: 1155 - 1180

The open gap at 1167 and 0.5 retracement can be the candidate for a reversal.

 


 

TheWaveTrading

Author: TheWaveTrading

TheWaveTrading

Contact: If you would like to contact the author, you can e-mail him at thewavetrading@gmail.com

The main objective of this project is to share my views on several markets and asset classes.

In the initial stage TWT website will be a free service.

My main focus will be the equity market with SPX being the leader but I will also follow US equity sectors, major European indices, fixed income, currencies and commodities markets.

My analysis is based upon traditional Technical Analysis, Elliot Wave guidelines and investor sentiment.

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on the long and short side and mainly with leveraged ones (2 x & 3 x).

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