I my last weekend analysis I mentioned that the Ending Diagonal became my primary count and that if the bottom of the final wave (V) of the ED were to be established with positive divergences of momentum & breadth indicators then a "Tactical Bottom" should lead to at least a multi week rebound.
This week's rally suggests that price has established the reversal I was expecting, in addition the positive divergences strengthen this scenario.
If my primary count is correct SPX completed with a Triangle a Triple Zig Zag from the November 2008 low.
The structure of the decline off the July's peak is corrective and can be counted as a wave (A) of a Zig Zag. Hence, in my opinion, a countertrend rebound wave (B) will be followed by a wave (C) down.
The Top established on July can either be the Wave (X) of a large Double Zig Zag off the 2000 peak, which would imply that the current wave (Y) could fully retrace the move from the March 09 low or it can be a wave (A) of a larger Zig Zag from the November 2008 low. But the fact of the matter is that for trading strategies this issue atm is irrelevant.
In the monthly chart we can see that:
- 3m cross below the 6m = The trend is down
- Price is at the 3m & 50 m resistance
- Next resistance areas:
- 100m = 1201
- April 2010 peak = 1220
- 6m = 1245
I believe that SPX will have a tough time to achieve an eom print above 1245.
In the chart below we can take a closer look at the potential completed ABC wave pattern off the July's peak and I can highlight the following conclusions:
- Price has to establish a higher low above 1074.77
- Once the higher low is in place price has to establish a higher high above 1195.86
- If this 2 requirements are fulfilled then the current countertrend rebound could have a target box in the range 1243 -1278
The price structure of Russell 2000 and DJT fits with the scenario discussed for SPX:
- Russell 2000:
KBE should have completed a large wave (A) off the February top. But I hesitate to call for a large wave (B) rebound as long as the gap at 20.62 is closed. I am monitoring closely this etf since it may offer a large upside target.
NDX is a different "animal" maybe it is tracing a flat/expanded flat wave (C). In my opinion it does not have an appealing price structure.
To sum up:
- We have enough technical reasons to consider that on last Tuesday price has established a "Tactical Bottom".
- We now need in the daily time frame a higher low and a higher high.
- If the 2 requirements are achieved then the bottoming process of the sideways price structure off the August low will be confirmed.
- Then a countertrend rebound could target the neckline of the H&S for SPX and the 0.618 - 200 dsma for the major equity indexes.