I maintain my long-standing view that price has not begun the "perma bear path" towards the March 09 low. Neither I believe that the intermediate up trend has resumed.
Instead I believe that price is involved in a large and complex corrective pattern. We have to let price run its course and in due time eventually there will be opportunities to get involved in the short side.
The best illustration of this idea can be found in the price structure of NDX where, since the February's top, everything has been corrective; therefore it is unlikely that price is ready for a bearish resolution yet.
Instead I am "working with" a potential wave (B) in progress, which should be unfolding a Double Zig Zag, maybe shaping a large Bear Flag.
If this count is correct then we have an extension target for a potential Top at 2528. Time wise since the assumed wave (A) took approximately 6 months to be completed then the wave (B) could be done by February.
Regarding the long time frame EW pattern, I am looking at a potential complex wave (B) that it is tracing a Triple Zig Zag.
It is unquestionable that during 2007-2010 price shaped an inverted Head & Shoulder that if it plays out it has a target at 3106
Regarding SPX I have been "defending" the idea that, sine price has only been able to trace a 3-wave down leg off my nominal high at 1347, by no means we can consider that the "Hope rally" that began off the March 09 low is completed.
The fact of the matter is that we don't have evidence that a bearish resolution is in the cards yet, instead price could be involved in tracing a large corrective pattern that has more work to do before a top can be considered in place.
In this respect I am "working" with a potential wave (B) or (X) in progress that is expected to trace a Zig Zag off the October 4 low.
If price achieves the equality extension target, within the Zig Zag, then price will most likely revisit the summer highs before rolling down.
When this potential EW pattern is completed then we will be able to focus on the down side as price could have as a magnet in the 1010 area.
This is all I can say about the long time frame pattern, and since $$$$ are not made with being right on long term patterns I prefer to take part in the shorter time frame.
Therefore I am only interested in the EW pattern that price is tracing from the October 4 low. Which is my opinion is suggesting that the trend is up.
As you already know in this time frame I am working with two EW options:
- Zig Zag (ABC)
- Triangle wave (B)
And as long as price does not lose the 1215 horizontal support line then my preferred count is the Zig Zag option.
If this scenario is the correct one then price has to trace an impulsive wave (C) up which has an equality extension target at 1376.
For the short term, the important issue now is: if price has already began the wave (3) up. Honestly I am reticent because, even though on Friday SPX ended the day with a bullish Piercing Line the internal structure of the daily rise in my opinion is not impulsive. Therefore the probability of revisiting last Thursday's lod is large.
We also have a potential toppish weekly Spinning Top.
In this time frame we have a clear view of the critical support and resistance numbers.
We have the trend line of a potential bearish channel then the 50 w = 1269. Giving a leeway, a weekly close above 1277.55 should open the door for the impulsive wave (C) up.
We have the following support numbers 1230, 1221, 1215.
If I am right, then by early next week, price should complete with a Double ZZ the assumed wave (2) with a quick dip in the range = 1227-1220
The big caveat to this short-term scenario is FOMC day on Tuesday, which is supposed to be bullish. Hence Monday's price action will be critical.
Once FOMC is out of the way we will have to deal with Quarterly OPEX next Friday. By then we will have only 5 trading days left before Christmas Eve and 9 before year-end.
Since December has an historical bullish seasonality I am guessing that either we have a bullish OPEX or at the latest the following week it should be bullish into year-end.
In the Technical Front, I maintain my focus on the behaviour of the daily momentum indicators. Here we have an overbought Stochastic with a potential bearish cross. But if the assumed wave 2 is not in place yet the RSI should not lose the 50 line.
I am also monitoring the weekly Stochastic of the Summation Index which is expected to trigger a buy signal with the kick off of the assumed wave (3) of (C) up:
Of the 3 contrarian indicators that I am following, VIX and the Bund have turned bullish for the equity bullish scenario, while the EUR may have not completed yet its corrective pattern:
- VIX: On Thursday only 1 tick avoided a bullish Island Reversal and on Friday it collapsed. The Island reversal failure has turned the trend down. The next support is at the last higher low & 200 d in the area of 25.29 then there is only thin air down towards the lower trend line in the area of 20 of a potential massive bullish falling wedge.
- The Bund, with Friday's massive bearish engulfing candlestick, should have completed a potential wave (X) of a pending Double ZigZag. The target range for the assumed wave (Y) = 130 - 126
- The EUR has probably not completed yet an assumed wave (B). Here I am looking either for an Ending Diagonal or a complex Triple ZZ.
Ending Diagonal option:
Triple Zig Zag option: