We now have to be watchful since price should be attempting to complete the corrective down leg from the December 7 peak (SPX = 1267), and allow the awaited Santa "rebound".
From almost the beginning of this down leg I was aware that the EW pattern that price was tracing was not impulsive hence I was not expecting a fully retracement of the previous up leg.
I have been looking at a potential Double ZZ as price was drifting lower but maybe the overlapping pullback can be easier labelled as a Zig Zag with the wave (C) on the verge of finishing an Ending Diagonal.
If this is the correct pattern then price will be able to rally at least into next week.
Keep in mind that the break out of a falling wedge is always swift and usually price attempts to retrace towards the origin of the wedge of 1258 which, btw, almost coincides with December 2010 eom print of 1257.64. Definitely this # could be a magnet going into year-end.
As a potential target we have the 1.618 extension at 1200
If the ED option is busted then I will take up again the Double ZZ option, which seemingly needs more business to the down side in order to establish a bottom presumably in the 1190 area.
Regarding the overall EW pattern from the October 4 low unfortunately I have a lot of reasonable doubts and honestly right now I don't have enough confidence on none of the 4 options I discussed this weekend:
- Impulsive wave (C)
- Triangle wave (B)
- Larger Double ZZ wave (B)
- Bearish resolution, which calls for a wave (B) in progress with a potential target in the 1000 area.
Therefore for the time being I maintain my focus in the short-term time frame.
From the daily chart below we can know that:
- Any meaningful rebound needs an eod print above 1231.47
- Price is a approaching an area (0.618 retracement = 1200; trend line off October low; gap at 1195) where it is reasonable to expect a rebound attempt.
In addition we have the Santa bullish seasonality.
I would like to add 2 thoughts:
- The impulsive wave (C) option needs a considerable improvement of momentum and breadth indicators together with impulsive upside action.
- The Triangle option probably should need a larger wave (c) with a bottom closer to the 1180 area.
We have to realize that we are trapped by a large amount of uncertainties, which is clearly reflected by the price action.