Daily Analysis

By: TheWaveTrading | Wed, Dec 21, 2011
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Yesterday, SPX with a "covert"-ending ending pattern completed the corrective down leg off the December 7 high.

The Dow traced a better-looking Ending Diagonal:


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The strong advance began in Europe where a successful Spanish debt auction and news from ECB new liquidity injection program (LTR) - whose first auction will take place this morning - triggered a short squeeze.

This is how a bottom is usually established = potential ending pattern + news + short squeeze.

In the US all the gains were mostly done at the opening and obviously given the overshoot to the upside we already have extreme overbought readings of TRIN witch closed at 0.17. Hence some type of consolidation should be expected for the immediate time frame.

The recovery above the 50 d = 1230 now opens the door for a move towards the 200 dsma = 1260.

Keep in mind that price, since the end of October has failed 3 times to overtake the 200 d, therefore if price is able to break it (at least with 2 consecutive eod prints above it) then we would have an important bullish statement.

The area of 1257 will also gain attention as we approach year-end.


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With 2,5 days left to Christmas I guess that for what is left of the week the trend will be up/sideways.

But caution should be maintained since as, I have mentioned, the larger time frame pattern is very muddy and 1 day rally unfortunately does not bring any "light" nor a substantial change in the complex EW pattern that price has been involved since last summer.

Objectively, without EW counts, the trend since this summer highs is atm clearly down since we have lower highs/lows all the way to the October 4 low. Hence as long as 1293 is not breached, up legs should be considered as countertrend moves, and we cannot rule out either that price is involved in a large corrective pattern that will result in lower prices ahead.


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Regarding the potential EW pattern that I have been highlighting lets focus the attention of the 2 options that would allow higher prices.

  1. Triangle wave (B)


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If this is the correct pattern, in my opinion, price is still tracing the wave (C) with a Zig Zag. Hence the current wave (b) should fail to breach the 200 dsma.

If price maintains the contracting pattern, then it could be completed by mid January.

  1. Impulsive or Ending Diagonal wave (C)


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If this is the correct pattern then price will have to trace a 5 wave impulsive up leg or unfold an Ending Diagonal.

The potential expected target range = 1293 - 1376

For the time being and as long as we don't have a substantial improvement of breadth and momentum indicators this option does not have look viable.

The EUR pattern is also a concern as the current rebound is clearly corrective.

And VIX with a bullish falling wedge both in the long term and short term time frame should also be a concern until proven otherwise.

VIX long term:


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VIX short term:


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TheWaveTrading

Author: TheWaveTrading

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.

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