Long term time frame EW pattern:
Since we only have a 3-wave down leg from the July's "potential" nominal high price should be involved in a large and complex corrective pattern, and as I mentioned last week:
"...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."
NDX overlapping price structure from the February's peak is also suggesting a similar outcome as long as the gap at 2150.88 is not closed.
I still maintain a bullish stance, but with caution, because the October's up leg - Potential wave (A) - has been followed only by a corrective 3 -wave down leg, which is strongly suggesting that the EW pattern from the October 4 low is not completed yet.
If price is tracing a corrective ABC then I thought that the 2 obvious possible EW pattern were:
- Zig Zag (Upward ABC)
- Triangle wave (B)
Initially the Zig Zag option was my primary count, which meant that the current down leg should have been the wave (2) of (C) but despite being corrective price not only, so far, it has not been able to establish an ending pattern, btw we needed a bullish weekly hammer which has been denied, but momentum and breadth indicators have deteriorated considerably therefore now this option in my opinion is less likely:
- Summation Index has a new bearish cross:
- NYSE BPI has a new bearish cross:
- In the daily momentum indicators we have the RSI below the 50 line and the MACD with a bearish cross and on the verge of losing the zero line:
- And Insiders are not believers of an imminent rally either:
If price is tracing a Triangle then the current down leg is the wave (c).
The wave (c) should bottom in the range of 1195.12 (gap fill & trend line from the October low) - 1181 (0.786 retracement). I suspect that at least an intraday dip below the gap should be expected.
If this is the correct pattern, then it should be completed by the beginning of January.
If price continues to fade and breaches the assumed wave (A) of the Triangle at 1158.66 then price could be tracing Double ZZ maybe shaping a bullish flag.
Unfortunately even though the lack of impulsive down side action suggests that price has not established a major top, we cannot rule out either that price, through a complex Double ZZ, is involved in tracing a wave (B) that could revisit the July's 2010 lows.
If this is the correct pattern then NDX could be tracing a Triangle or a Bullish Flag wave (X). Keep in min that NDX has a potential inverted H & S whose neckline has been tested in several occasions since last August.
Therefore even though it may seem that this morning I woke up with plenty of doubts, the fact of the matter is that we have to remain open minded since corrective patterns can morph easily aborting patterns that initially are thought to be the right ones.
Hence since we have to live with it my approach remain focused in the shorter time frames.
Short Term EW pattern:
What is a fact is that the current down leg is corrective. Here I am "working" with a Double Zig Zag. If this option is not mistaken then price should complete the final impulsive wave (C) that may have as a potential target the range 1195-1191. In this range we have the trend line from the October 4 low, a gap that could be filled and the equality extension target.
Friday's price action gives the "guarantee" that the "selling pressure" is not over yet, since after failing at the 1130 are, (an eod print = 1130 would have resulted in a bullish weekly hammer) SPX sold off with an impulsive down leg, which was followed by a shallow corrective pattern. And we all know that an impulse down followed by a corrective move means more selling ahead.
In addition VIX has a potential bullish falling wedge completed or almost done.
If this pattern pan out then I would not rule out a move at least at the gap = 30.64 while in the worst case scenario the origin of the wedge in the area of 35 could be tested.
Therefore I am afraid that Santa, if he is coming, he will be arriving very late next week.