My long-term count remains the same:
- Double ZZ off the 2000 peak. The wave (X) topped on July at 1347. The wave (Y) down will challenge and may exceed the March 09 low.
- July's nominal high is wave (A) of (X). Price is now tracing a corrective wave (B) that should bottom no lower than the 927 area. We have a tough market since the lack of impulsive action off last summer highs casts doubts regarding a potential bearish outcome, but if the long-term count that I am working with is correct then we are dealing with either a wave (B) or a wave (Y) that by their nature have to trace corrective patterns.
Therefore I am assuming that:
- The intermediate trend is down: At 1347 price has completed a wave pattern, either a wave (X) or a wave (A).
- At the October low we don't have a major bottom in place, since despite it has been established with a corrective Zig Zag, the following advance has also traced a corrective pattern.
- Therefore we should expect more weakness ahead.
- The confirmation that the trend has reversed to the down side needs a lower high.
- The odds that the trend has reversed to the down side are large since we have a potential impulsive down leg off the October high, which has been followed by a corrective rebound which has stopped at the 0.618 retracement.
The bearish set up has to be confirmed.
If price recovers above 1263 the bearish scenario could be killed.
In addition CPCE is on the bullish side:
ES Globex has corrective down side action + a five up off Friday's lod which is suggesting that there could still be a pending wave (C) up in order to complete the Double ZZ
Anyway the EUR should limit any unfinished business to the upside if the its Double ZZ is completed, shaping a likely bear flag. (As I am writing it has opened with a gap down)
On the Technical front we have:
a) Mixed signals from momentum indicators.
- Weekly momentum indicators are bullish
- Daily Momentum indicators have the Stochastic on the verge of reversing a bearish cross while the MACD has no bearish signal cross yet.
b) Overbought readings of Breadth indicators:
Judging from the NYSE % of stocks above the 50 dsma & the weekly stochastic of the Summation Index the market is overbought. The odds of a large reversal are large.
c) Negative divergence of the NYSE 10dsma of the Adv-Dec. Volume