Daily Analysis

By: TheWaveTrading | Fri, Dec 23, 2011
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SPX is arriving at an important crossroad with a 3 -wave up leg off last Monday's lod.

Price behaviour into year-end will finally bring some "light" as we will be able to increase the confidence on one of the potential EW patterns that in my opinion are the best candidates to define the muddy price structure that price is unfolding from the October 4 low.

Yesterday price reached a potential target for the third wave up off Monday's lod at the 0.618 extension with a potential ending pattern. Hence if the small ED is correct we should expect at least a short-term pause.

A 3-wave up leg, barring an improbable extension higher, can either be a corrective ABC up or the initial stages of an impulsive up leg.

Therefore now we have a key level to watch at 1242.82 since, if in the next pullback price breaches this "price marker" the overlap will kill the project of an impulsive wave (C) up.

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So lets review the 3 options that I have been discussing:

The most likely scenario will be the impulsive wave (C) up.

This option has an equality extension target at 1377

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  1. Triangle wave (B):

Price should fail to overcome the 200 d = 1259.50 with a wave (b) of (C)

And maintain a contracting structure until the wave (E) is in place

If price breaches the assumed wave (A) lod at 1158.67 this option will be killed.

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  1. Double ZZ wave (B)

Price should reverse at the trend line that connects the October & December peak followed by a "scary" and deep impulsive down leg that will bottom above the October 4 low, maybe shaping a bullish flag.

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In the bigger picture time frame we can see that any bullish idea MUST achieve to break above the 200 d and the huge downtrend line resistance in order to knock out the "obvious" bearish channel.

If this obstacle is removed then the "bearish" wave (B/X) could top anywhere in the range 1320-1377

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In the technical front we have an improvement of momentum and breadth indicators:

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As mentioned yesterday VIX is warning that a pullback is due. Yesterday it closed with a Doji below the lower BB of the envelope (20.20). A potential mean reversion would have a target in the area of 26.80 if the 200 d at 25.73 were breached.

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And lastly I wish you a wonderful Merry Christmas and all the best for the New Year.

I will be back on January 6




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.

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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