Weekly Analysis

By: TheWaveTrading | Sun, Oct 16, 2011
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Longer time frame EW pattern:
I maintain the same scenario I mentioned in my last weekend post:

"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."

Today I have to consider that given the surge of NDX above the 200 dsma, we cannot rule out that the intermediate up trend has resumed its path higher or at least it raises doubts regarding the scenario of a pending larger down leg.

Below I have a possible Triple ZZ in progress off the October 2004 low, in addition price could have shaped a large bullish Inverted H&S

Triple ZigZag
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Therefore I have to add, although it seems a less likely option, the scenario that assumes a completed corrective wave (B) pattern, which implies that the intermediate up trend has resumed with a wave (C) up that will carry price substantially higher above the "nominal high" established at the July`s peak at 1347.

For trading strategies despite NDX strength I am more focused on the shorter time frame and as I mentioned above I am looking for a countertrend move that will be followed by more weakness tracing a potential Zig Zag off the July's peak = ABC.

Therefore the current rally should be a wave (B) that will be followed by a wave (C) down.

Wave Count
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Therefore if the shorter time frame scenario is correct price should trace a 3 -wave up leg off the October 4 low.

If instead of a 3-wave up leg price shapes a fiver up then all bets are off and we will have to consider that NDX is leading the equity market to new highs.

Last week we had two potential reversal patterns that could have established the top of the first up leg but both were aborted.

It is obvious that this move is overstretched with extreme overbought readings of momentum and breadth indicators.

Last Friday I mentioned that the McClellan is at such an extreme overbought level that it should give higher odds for a pull back

McClellan Indicator
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But this is not the only overbought indicator:

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NYSE Summation Index
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Weekly RSI
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Daily RSI and MACD
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Hence the probability of a "large" reversal is getting increasingly higher.

Where will the assumed wave (A) top?

Lets try to identify possible targets:

a) If we take into account the weekly time frame:

If a top is not in place yet then the obvious spot is 1230.71:

If 1230.71 is breached then the next target range is: 1243 -1249

Where we have:

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At 1230.71 we also have the upper BB, then above it we have the 100 dsma at 1237

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On Friday we had a very strong close (as mentioned above with an overbought NYSE TICK reading of 929)

We have another Marubozu that could be the first part of a 2 days reversal candlestick pattern, if on Monday we get a small range body / harami / dark cloud cover.... Etc.

In order to consider that this up leg is completed we need an eod print below the 3 dsma = 1203.66

The expected target of the assumed wave (B) down is located in the range 1172-1155.46

Wave B
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Two issues are bullish friendly:

  1. Sentiment: both the Investors Intelligence and the National Association of Investment Managers are extremely bearish

Investors Intelligence Bull Ratio
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Courtesy of sentimentTrader

NAAIM Survey of Management Sentiment
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Courtesy of sentimentTrader

  1. The 10 dsma of CPCE is too high

10 dmsa of CPCE
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To sum up:




Author: 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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