Daily Analysis

By: TheWaveTrading | Wed, Nov 30, 2011
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Yesterday I mentioned that:

"Given the extremely oversold readings reached last week I don't expect that the rebound which has began with a short squeeze that it will be a one day event. Hence for the short term I have a bullish bias. Rebounds from an extended down move are always triggered by a short squeeze. If good news hit the tape then an oversold bounce could morph into something stronger."

Today I reaffirm the statement.

With the price information available I rule out that price has established a major bottom and it will reverse the downtrend off the October's peak but given the extremes reached last week this bounce could become much stronger than most expect.

As a matter of fact since the majority does not believe in this rebound a contrarian play may be in the cards.

But as you know my approach is always step-by-step.

I am also aware that we are approaching 2 critical events that need to be positive if something more than a dead cat bounce is what we are witnessing. I am referring to ECB meeting on Dec 8 and EU summit on Dec 9. These guys must come up with more than good intentions.

On Friday we also have the NFP from the US.

SPX Price Action.

So far we have a 3-wave up leg, which means that we are in a countertrend move, but a corrective pattern can travel higher.

This is my primary idea and I will maintain it as long as pullbacks are corrective, and this is what we have atm.

But price will not go up in a straight line. As a matter of fact yesterday's Shooting Star is a warning that we should expect a pullback for today.

A pullback here, if corrective, is what the s/t bullish scenario needs since a higher low in the daily time frame will strengthen the bullish set up.

SPX has reached the 50 dsma, the next assumed up leg will have to deal with the next resistance at 1215.42.

I maintain the 2 Elliot Wave Pattern discussed yesterday.

Being bullish here does not mean to overlook on a major move to the upside since the price action is corrective hence the risk of a reversal should not be underestimated.

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Gaps will play a major role if we get another up leg.

Both SPY and NDX will have a critical test for the bulls at two potential Island reversals:

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Short Term EW Pattern:

Bullish set up as long as downside action is corrective and price does not lose the 0.618 retracement at 1175.

I am working with either a potential Double ZZ in progress or the initial stage of an impulsive wave (C) up depending upon the if price manages to remain above 1191.

If below 1184 the primary count will be the DZZ.

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ES Globex price pattern is also strengthening the bullish set up since the current pullback is clearly corrective and it could be shaping a bullish flag.

Here we have a critical support at 1180.

While 1170 should not be breached by an eod print.

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Also the hated banks are tracing a corrective pullback, therefore the idea of at least a pending wave (C) is fine atm.

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There is a problem though that needs to be solved. The EUR is weak and the risk here is that price could fall back towards last week lows, since the pullback could morph into a fiver. Hence it is advisable to be prudent.

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VIX action, on the other hand, looks now more bullish friendly with yesterday's breach of 31.28 and the bearish cross of its Stochastic.

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In the Technical front we know that the big test will come at the 50 line, in the mean time the McClellan oscillator has crossed its 10dsma but it is still well below the zero line.

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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.

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