Weekly Analysis

By: TheWaveTrading | Sun, Nov 13, 2011
Print Email

If a market refuses to confirm a bearish set up it means that something else is "cooking". Then we have to consider that the rally that began at the October 4 low may not be over yet.

But at the same time I don't think that price has established a Major Bottom at the October 4 low since the structure of the rally does not have an impulsive look. Therefore once the assumed countertrend move completes its EW pattern (A potential Zig Zag), the price reaction should be ugly.

SPX - EW Pattern
Larger Image

2 weeks ago we had a potential bearish weekly Hanging Man candlestick this week we have a Doji. The Bears attempt to achieve follow through to the downside has failed. The 20 wsma has been unbeatable.

Bulls now have to achieve a weekly close above the 50 wsma = 1271, which coincide with the 200 dsma and attack the descending trend line.

If they succeed then we will have the confirmation that the "bear" market rally has more business to the upside with an assumed wave (C) up.

On the upside the immediate resistances are 1271 - 1285.08 - 1296

A weekly close above 1296 will open the door to a move towards 1330 - 1347 - 1370.

But given the extreme overbought weekly stochastic of the Summation Index I don't expect a major break out above 1370.

NYSE Summation Index
Larger Image

Therefore as long as price remains above 1215 it is now reasonable to have a neutral/bullish bias going forward.

Bears had another spectacular failure by wasting the opportunity of a "text book" Head en Shoulder in the DAX.

The 3 -wave down leg off 6194 was a warning of a potential bear trap. Bulls still have a lot of work to accomplish here but if they achieve to close the gap at 5753 then odds of a trend reversal will increase considerably.

DAX Futures
Larger Image

Bears can only hope on a Leading Diagonal if they get an immediate reversal next Monday.

Although the battle in the short time frame may be leaning towards a bullish resolution, the longer-term pattern is bearish. We have a clear 5 - wave decline off the July's peak. Therefore we have to expect at least one more large down leg once this countertrend move is over.

Larger Image

Not even the Italian MIB 30 has a bearish look.

In addition of having a potential impulsive move off the September low, which is suggesting at least one more "large" up leg is pendig, last week, when the Italian 10 yr. government bond was crossing the point of no return with a yield above 7% (556 bps above Bund) the Italian stock index on Wednesday did not even established a lower low. On Thursday it closed with a bullish Inverted Hammer and on Friday gap up and go .........

Next week if the Gap at 16018 is closed (bullish Island reversal) this market could go on "fire" for a while.

Larger Image

In addition:

There are some additional positives for the Bulls:

There is potential large Inverted H&S and the rejection -(October low) - at the neckline has allowed price to attempt the resumption of the intermediate trend to the upside.

Since such a bullish outcome is not clearly supported by the SPX wave pattern maybe NDX could be completing the wave (e) of a Triangle.

Larger Image

For the short term here there is also a potential Triangle wave (B).

Also notice how the 200 dsma has been able to reject several times the attacks from the bears.

Larger Image


Bears have on their side the daily momentum indicators signal crosses by Stochastic and the MACD & of the NYSE BPI.

Bearish Crosses
Larger Image

NYSE Bullish Percent
Larger Image


The EUR does not seem to have an EWP that can allow a move above the October peak, but the corrective structure of the overall pattern off the April top does not give a large confidence on an immediate bearish outcome either.

The short-term outlook would improve if the EUR recovers above 1.3970

Larger Image

SPX Potential Options:

On Friday SPX had a gap up and go, although volume was anaemic, probably due to the closed Bond market.

Two short term indicators are overbought: TRIN = 0.48 & TICK = 1024

Hence for Monday at least a "mild" pullback should be expected.

Last week I was working with 3 potential patterns for SPX:

Given the price inability to trace more that one potential impulsive down leg I have lost confidence on the option 2 & 3. These scenarios are now less likely as long as price does not breach the critical support at 1215(SPX).

While if the Triangle is the correct pattern price has to remain below 1277.55 (wave d) and above 1227 in the missing - wave e - down.

Larger Image

In addition I will add Option 4, which calls for the wave (C) off the October 4 low already in progress:

Larger Image

But in order to have confidence on the bullish set up we need VIX to head lower breaking the November's low.

Here there is a potential bullish falling wedge.

Is it completed or it needs one more down leg?

Larger Image

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).

The advantage of ETF investments is that it allows getting involved in equity indices & sectors, currencies, fixed income, commodities etc.

Therefore the main purpose of TWT will be to establish investment strategies regardless if the market is in an up trend or in a down trend, leveraging the chosen scenario while managing the risk by establishing protective stop losses.

Hence I will always define the risk, I will try to let winners run the wave and I will cut the losses if my strategy is wrong.

Disclaimer: The content of this article is for educational purposes only, the information supplied is not a recommendation to buy or sell any security or financial instrument.

Thewavetrading.com nor the owner can not be held responsible for any loses occurred from the information provided within the website.

The Information supplied cannot be copied or reproduced without the permission from the owner.

Copyright 2011-2016 TheWaveTrading

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com